It’s hard to say where Tesla’s (Tesla Stock Quote, Chart, News NASDAQ:TSLA) share price is going from one week or month to the next, but what investors can count on is the company’s leading position in the electric vehicle space. That should be enough to sell you on the stock, says Shane Obata, portfolio manager for Middlefield Capital, who just became a buyer.
“I’ve never seen anything like Tesla in my career, said Obata, speaking on BNN Bloomberg last Friday. “It’s a very divisive stock if you talk to people about it. They either hate it or they love it, there’s no middle ground. And when you have that kind of situation that can set up for tremendous gains as we’ve seen with with Tesla.”
“I recently initiated a position —it’s been an error of omission not owning it previously, but we do like the story,” Obata said.
Tesla’s share price has been on fire in 2020, returning year-to-date over 370 per cent. The stock was one of two Big Tech stock splits this year along with Apple, and while TSLA is down about 20 per cent from its split date at the end of August, investors have found more reason to believe via the company’s quarterly numbers, which have become much more consistent in 2020.
Tesla released its third quarter financials on October 21 which handily beat analysts’ estimates, registering revenue of $8.77 billion and adjusted EPS of $0.76 per share. The consensus forecast was for $8.36 billion and $0.57 per share. (All figures in US dollars.)
After being dogged for years with worries about profitability and the company’s ability to deliver on production promises, Tesla seems to have found its groove, arriving in the black for the fifth quarter in a row and delivering a record 139,300 vehicles over the Q3.
“We are increasingly focused on our next phase of growth,” said Tesla in its third quarter report. “Our most recent capacity expansion investments are now stabilizing with Model 3 in Shanghai achieving its designed production rate and Model Y in Fremont expected to reach capacity-level production soon.”
Critics again pointed out that Tesla’s quarterly profit depended in large part on almost $400 million received in regulatory credits — which won’t be around forever, as other car companies start ramping up their green and electric vehicle production — but it’s hard to argue with the company’s solid numbers, where Tesla has reiterated its 2020 guidance of 500,000 vehicle deliveries for the year.
But even as carmakers worldwide bring out more vehicles to compete with Tesla, the company should still be a favourite in the space, says Obata.
“This company is 100 per cent built to make electric vehicles,” Obata said. “Its competitors, the classic auto companies, are not set up in the same way, so it’s much more expensive for them to shift their production. It’s not a turnkey solution, so they have that advantage that they’re built to do this and this alone.”
“Also, they don’t have a marketing budget. That’s pretty remarkable,” Obata said. “Elon Musk is marketing in and of himself. And then there’s the idea that whenever anyone releases an electric vehicle, people are comparing it to Tesla — that’s more free marketing.”
“One of the things that really flipped the switch in my head on this company was the software. Tesla’s technology is so good, it’s fascinating. They’re adding real functionality to your car through an over-the-air software update,” Obata said.
Obata said Tesla’s ability to deliver to owners continual updates on features such as lane assistance tech and battery charging are a difference-maker.
The electric vehicle space is seeing rapid change as car companies move to not only bring out vehicles to meet public demand but to stay in line with environmental regulators. Last week, Volvo announced that due to strong sales for its hybrid models, it will have European CO2 credits to spare and will be selling them to Ford. Volvo said one in three cars sold in Europe this year have been hybrids. Both Honda and Fiat Chrysler recently announced their intentions to join with Tesla to meet their emissions requirements for 2020.
“The EV space is another space that will probably continue to grow. It’s part of the green wave and Tesla is the leader. So, we think that they’ll continue to do well,” Obata said.
Analysts are far from in agreement on Tesla, however, which habitually garners just as many Sell ratings as Buy ones. Leading up to the third quarter results, Wedbush analyst Daniel Ives raised his one-year target from $475 to $500 in an update to clients on October 19 yet kept his “Neutral” rating on the stock.
Ives asserted his faith in Tesla’s ability to hit delivery targets, saying “We believe with a strong 4Q that Tesla will be on a pace to hit the 500,000 threshold as pent up China demand and pockets of strength within Europe remains the linchpin to the demand resurgence that Musk & Co. have seen over the past few quarters.”