Tesla (NASDAQ:TSLA) unveiled its pickup truck on Nov. 21 in Los Angeles. The newest car from the electric vehicle manufacturer could go a long way to Tesla stock finally hitting $400.
Is a third time the charm? I think so. Here’s why.
Ford and GM Running Scared
The three major Detroit automakers all have benefited dramatically from America’s move to trucks and SUVs. Whether we’re talking Ford’s (NYSE:F) F-150, General Motors’ (NYSE:GM) Chevy Silverado, or Fiat Chrysler’s (NYSE:FCAU) Ram trucks, the big three U.S. automakers have stayed afloat in large part because of this move.
Now Tesla is ready to join the party, and if Ford’s launch of the Mustang Mach-E SUV is any indication, consumers ought to be more than willing to take Elon Musk’s latest creation for a test drive.
When investors think about what moves stocks higher, the first thing that comes to mind is earnings. Share prices traditionally have been driven by earnings. However, investors also look at catalysts. On that front, Tesla has many.
It is the new truck that has many contemplating $400.
“When we think about what could propel Tesla shares higher or lower, light-duty truck sales seem like the one possible area that’s obviously the most profitable sector for the U.S. auto industry,” said Optimize Advisors President Michael Khouw recently.
The release of Tesla’s new “Cybertruck” coincides with the movie “Blade Runner,” the Harrison Ford sci-fi flick that took place in November 2019. Elon Musk has even referred to Tesla’s new truck as the “Blade Runner truck” from time-to-time throughout the vehicle’s development.
Musk has said the new vehicle will cost around $50,000, outperform the F-150 and your garden variety Porsche 911, and be visually different from most of its competitors.
Skeptics suggest that it will be tough for Tesla to make money from a vehicle that sells at the same price as the F-150. Future estimates for full- and mid-sized electric truck sales in 2026 will amount to just 75,000 out of three million light trucks sold that year.
TSLA’s Great Innovator
The worry is that unlike the Model 3, the new truck might be a niche product that does little to increase Tesla’s economies of scale, sending it down a profitless rabbit hole.
Perhaps. But I’d never bet against Elon Musk. He remains one of America’s greatest innovators.
“What makes Musk different is that while he may be borderline nuts, he executes. Jobs wasn’t exactly the most stable person I’ve ever known either, but man could he execute. If he wanted it done, it got done,” Enderle Group principal analyst Rob Enderle stated in December 2018 … “Innovation comes with risk. If you aren’t willing to take the risk, you can’t innovate.”
While Ford and GM might perceive Elon Musk as the competition, Musk looks at the industry in an entirely different light. When Ford released the Mustang Mach-E on Nov. 18, Musk was the first to congratulate the company.
“Congratulations on the Mach E! Sustainable/electric cars are the future!! Excited to see this announcement from Ford, as it will encourage other carmakers to go electric too,” Musk tweeted.
Elon Musk gets it.
The Catalyst That Pushes Tesla Stock to $400
As I write this, TSLA stock is trading $41 below $400. The first time TSLA came close to $400 in May 2017, it came up $13 short before stalling out and ultimately falling back into the low $300s. The next time it came close to $400 was July 2018. Again, it came within $13 before losing altitude.
Tesla’s stock has been on a roller coaster ride so far in 2019. If you were to judge its year by the last three months — it’s up 56% through Nov. 20 — you would think it’s setting the world on fire. However, it’s only up 6%, well below the entire U.S. market.
For a third time to be the charm, Tesla needs a catalyst. While the new truck is unlikely to move the needle on sales, the fact that Musk and company continue to innovate and push its electric agenda says a lot about the company’s commitment to its vision.
In the latest quarter, Tesla stated that going forward; it will be free-cash-flow positive with possible temporary exceptions. As its margins continue to improve, the talk of Tesla going bankrupt or running out of money will slowly disappear.
I like Tesla’s chances of hitting $400 in early 2020.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.