Investor's Corner
Why a Tesla Model Y update during the Q4 earnings call will set TSLA on fire
Tesla is set to report its Q4 2019 earnings after the bell rings to close trading on Wednesday and if the electric car manufacturer announces during the call that Model Y delivery will begin soon, expect TSLA stock to skyrocket.
A stellar Q3 2019 performance helped Tesla stock gain momentum and set up Elon Musk’s electric car brand for its final push in the last few months of 2019. Analysts are optimistic following its historic fourth quarter, when it was able to deliver 112,000 vehicles and produce more than 104,000 units. This helped TSLA rise to a $100 billion valuation, bumping German auto giant Volkswagen on the second spot in the list of the most valuable carmakers in the globe.
UPDATED: Tesla $TSLA shares soar following confirmation of Model Y first deliveries and breakout Q4 2019 results
As for the much-awaited all-electric crossover, the production schedule of the Tesla Model Y has moved up from Fall 2020 to Summer 2020 but all signs hint that it may even come sooner. From several sightings of production-ready Model Y units, the publication of its CARB certification, VINs registration with the NHTSA, and phone calls to future Model Y owners, rumors that the first deliveries of the Model Y will begin in February are highly-likely true.
If the Tesla Model Y premium electric crossover indeed hits the road next month, expect movement in the price of TSLA stock. And the only direction to look is up.
Early delivery of Model Y should scare competitors
Tesla has struggled before in keeping its promises of delivering vehicles to customers on time. Skeptics had a point because every carmaker must do its best to meet the demand and keep their customers happy. Elon Musk and his team fine-tuned kinks in production and proved to critics that they’re taking steps in the right direction as Tesla delivered 367,000 vehicles in 2019 — that’s a 50% jump from its numbers in 2018.
Deliveries of vehicles is an accurate barometer of how Tesla is starting to walk the walk, a clear sign that there’s an improvement in the company’s fundamentals as a whole. Initial production of the vehicle is being handled by Tesla’s Fremont plant in California but the company has also started its Model Y program in China. Giga Berlin will contribute to its production as soon as July 2021, with the facility set to start its operations with the production of the all-electric crossover as well.
The early delivery of the Model Y to consumers also means that Tesla has underpromised and over-delivered. This is a screaming signal that competitors should worry cause whatever “advanced manufacturing technologies” Elon Musk mentioned when he recently spoke about the Model Y could work wonders for the carmaker. These innovations may be related to a casting machine that can practically cast most of the vehicle’s body in one piece, rigid wiring system, and other technologies that the market will learn about soon.
“Model Y will also have some advanced manufacturing technology that we will reveal in the future. I think it will be exciting to show the kind of manufacturing technology associated with the Model Y and it will be exciting to learn about these technologies,” Musk said.
If these manufacturing technologies take Tesla a step closer to perfecting its production line design, then it can hit its production goals in Fremont, Shanghai, and Berlin in the near future. Of course, this efficiency in Model Y production will have a chain effect across its factories and product lines. Better production means a smaller gap between supply and demand. With better efficiency, trust in the brand can soar and sales go boom.
Tesla Model Y will be king of SUV/Crossover Segment
The Tesla Model Y electric crossover that has a range of 300 miles and an impressive 0 to 60 mph time of 3.5 seconds for its quickest variant is positioned perfectly.
Demand for sedans in the United States has been going down fast in favor of more spacious and more functional rides such as SUVs and crossovers. There were 17 million vehicles sold in the US in 2019 and only 28% of that are cars.
Focusing on the crossover segment, the Tesla Model Y has some formidable competition in the form of the BMW X3, Audi Q5, Audi e-tron, Jaguar I-PACE, and the more affordable Toyota RAV4 and Honda CR-V.
In terms of price and size, the Model Y is comparable to the rest of the pack but the Model Y will have an option to accommodate seven passengers that others cannot offer. And of course, the other electric crossovers are all from internal combustion engine producers and they’re not doing very well. The Audi e-tron only sold 5,369 units in the US while the I-PACE sold 2,594 units. The picture is similar for other mid-sized SUVs.
With the preference of consumers leaning towards roomier vehicles, the Model Y will further prove the credibility and popularity of Tesla brand.
Model Y can help push Tesla to sustained profitability
During the Q3 earnings call, Musk was quoted about his expectations of the Model Y.
“I’ve actually recently driven the Model Y release candidate, and I think it’s going to be an amazing product and be very well received. I think it’s quite likely to — this is just my opinion, but I think it will outsell S, X, and 3, combined,” Musk said.
The Model Y is the ultimate bad news for critics and competitors. If Tesla found a way to accelerate production and start delivering its all-electric crossover in February, that just means Model Y sales would be added to the books and help raise the company’s earnings in 2020.
While the Model 3 is the first mass-produced vehicle of Tesla, the Model Y will be the first affordable electric SUV that can help push it to sustained profitability. The electric crossover that starts at $39,000 shares 75% of its DNA with its sedan sibling but even with a higher price tag, the innovations in production that Elon Musk mentioned will push the cost down.
Tesla will not only have a good profit margin for the Model Y in the United States, but there’s also a good chance that its margins will even be bigger in China where the locally-made Model 3 has received a warm reception.
The Palo Alto, California-based company can push the margins for its electric crossover further by doing what it plans to do with the Made-in-China Model 3. Localization of components will be key as this will allow Tesla to push the vehicle’s price down and practically create demand. That will work well, according to analysts from Chuancai Securities, an equity firm in China.
The Tesla Model Y will be a game-changer in the industry. If Model 3 was the straight punch to its competitors, the Model Y will be the power uppercut punch that will knock out its rivals.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
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