What Should Investors Do With Tesla (TSLA) Stock?

Shares of Tesla TSLA plummeted Monday after chief executive Elon Musk once again found himself in hot water after he posted a rude comment about a British cave explorer regarding the Thailand cave rescue mission. Although the CEO’s statements were crass, they don’t really impact Tesla’s core business. So let’s assess TSLA stock at what could be a buying point.

Musk

Musk responded to a British cave explorer who said that the outspoken billionaire’s effort to build a custom, ultra small submarine to help with the rescue of the boy’s soccer team trapped in a cave in Thailand, which dominated the news cycle for over a week, was purely a public relations stunt. Tesla’s CEO wrote “Sorry pedo guy, you really did ask for it,” in a now-deleted tweet, aimed at Vern Unsworth on Sunday.

Unsworth is reportedly considering taking legal action against Musk. It is still unclear what will come of this brief exchange, but it does mark the latest example of Musk's aggressive and sometimes over the top and controversial Twitter TWTR tactics. He has used the social media platform to taunt short-sellers, take on journalists, and much more. Investors clearly don’t love Musk’s use of Twitter when it backfires on him, but there is no doubt that much of Tesla rise is due to the CEO’s vision of the future.

But that real questions are: what’s going on with Tesla now and what should investors expect from the company’s second-quarter financial results?

 

Production & Model 3

Tesla announced on July 2 that it produced 5,031 Model 3 cars over the last seven days, topping its 5,000 goal for the first time. The company noted that it produced a total of 53,339 vehicles during the second quarter, which marked a 55% sequential surge.

Tesla also manufactured 28,578 Model 3 vehicles in the quarter. Tesla noted that this was the first time production of its mass-market Model 3 topped combined Model S and X rates, helping it make Q2 “the most productive quarter in Tesla history by far,” according to a company statement.

In total, Tesla delivered 18,440 Model 3s, to help bring its Q2 total to 40,740 vehicles. Investors should note that this came in well below Goldman Sachs’ GS analyst David Tamberrino’s estimate of as many as 28,000 Model 3 vehicles. Meanwhile, Tesla said that its Model S and X deliveries were in line with its own guidance.

Tesla also reaffirmed its target of 100,000 Model S and Model X deliveries in 2018. Meanwhile, the electric vehicle company expects to up its Model 3 production rate to 6,000 per week, as soon as next month. Furthermore, Tesla recommitted to its guidance of positive GAAP net income and cash flow in Q3 and Q4.

With that said, some analysts voiced their skepticism about Tesla’s Model 3 production rates and suggested that the company simply reallocated resources and employees in a rush to meet its own self-imposed Model 3 production goals. This sent Tesla stock tumbling at the time.

Shares of Tesla are down 3.3% over the last year and have sunk even further recently as investors assess the electric vehicle giant’s future. 

 

Outlook

The Model 3, which starts at $35,000, is by far Tesla’s most-affordable vehicle. The mass-market sedan is also the reason that many investors think Tesla will be able to take on the likes of General Motors GM, Volkswagen VLKAY, Ford F, Toyota TM, and other more established automakers both now and for years to come.

Our current Zacks Consensus Estimates are calling for Tesla’s Q2 revenues to climb by 38.4% to hit $3.86 billion. Looking ahead to the full-year, Tesla’s revenues are expected to reach $18.41 billion, which would mark a roughly 57% climb from fiscal 2017’s total of $11.76 billion.

At the other end of the income statement, Tesla is projected to report an adjusted second-quarter loss of $2.71 per share, as well as a full-year loss of $8.30 per share. However, investors should note that the company is projected to report adjusted full-year earnings of $0.14 per share in fiscal 2019.

Bottom Line

Tesla finally reached its Model 3 production goal and upped its new target to 6,000 per week. This alone might be good enough for some investors to consider buying Tesla stock.

Yet, it is worth pointing out that Tesla’s earnings estimate revision activity has trended in the wrong direction recently, which helped Tesla earn a Zacks Rank #3 (Hold). Therefore, it might still be time for investors to monitor TSLA, especially as Musk continues to grab headlines for the wrong reasons.

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