Is Tesla's stock peak temporary?

Analysis do believe that Tesla's stock is likely to lose its shine amidst lousy earnings of the company

Since February, Tesla stock had a modest momentum and the stock soared following the news that the highly anticipated electric car Model 3 has garnered the reservation of around 400,000 units. But, several analysts believe that the stock’s peak was temporary and slowly it will lose its shine.

Model 3 has come along the tagline of “affordable.” Marked at a price of $35,000 the electric car is reasonably affordable for everyone save Tesla.

For every Model S sedan, the Palo Alto Calif. firm loses over $4,000 and the model cost ranges between $70k and $108k. Therefore, it can be easily assumed that the Model 3 $35,000 price tag is not likely to solve the company’s financial deficit.

The income statement of the auto-tech giant has revealed that the company’s cash has been draining away at a very fast pace. Also, according to TheStreet Ratings, the company has net profit margin of -26.38% and a quick ratio of 0.49 –meaning that for every current liability of $1, the company has the ability to pay back only 49 cents.

Keeping aside the deepening worse side of Tesla’s cash flow and earnings, the automaker is significantly overvalued as compared to its competitors. The market cap on the Silicon-Valley auto-tech giant is over $30 billion which is substantially higher than Ferrari’s $8 billion and Fiat Chrysler’s $10 billion. To be valued at least thrice the value of FCAU –which is more profitable and established company –seems unreasonable and a bit exaggerated. The annual sales of FCAU close at $130 billion whereas the Palo Alto, Calif. firm generates revenue of mere $4 billion.

Moreover, the luxury electric car maker’s market capitalization is approximately two-thirds of General Motors’. This is regardless of the fact that historically German Motors sell 10 million cars annually at a profit while Tesla, last year, sold below 100,000 cars and that too at a loss.

Bob Lutz, former GM executive expressed the following in an interview with CNBC, “[Tesla] costs have always been higher than their revenue… They always have to get more capital. Then they burn through it.”

Mr. Lutz pointed out that since the fall in the oil prices, the demand for electric vehicles have slowed down a bit. Additionally, the competition in the electric car market has been growing rapidly with many established manufacturers entering into the domain of electric cars. In the next few years, Apple might reveal its long awaited electric car. Moreover, in the current year, rival GM’s Chevy Bolt is expected to come out.

Therefore, Tesla’s stock is likely to lose its ability to stand at top. As of now, at the market which closed on Tuesday, Tesla Motors Inc. stock stood at a price of $232.32.

Excessive Warranty Cost Challenges Tesla Motors

The autotech giant has to slash down its warranty cost in order to make the current year profitable.

Tesla Motors Inc. CEO, Elon Musk has announced to the investors that the luxury EV maker is likely to put an end to burning cash and post profit this year. In order to be in line with the pledge it has taken the company has to circumvent the cost associated with the problems in the quality of the vehicles.

Since 2014, the Palo Alto, Calif. firm has been corralling its average cost of warranty –or repair cot –per premium electric vehicle. According to the analysis of the company data done by Reuters, it is still spending twice as much as Ford Motor Co. and General Motors Co. Also, the luxury electric car maker’s warranty costs exceed that of Daimler AG’s –the German based maker of Mercedes-Benz luxury cars.

Automakers including Tesla haven’t adopted the practice of segregating the warranty costs but the companies do provide in the financial statement the number of vehicles delivered and the amount spent as warranty and other accruals – which represent the money put aside for future probable use.

According to the data analysis carried out last year by Reuters based on the information provided by the company in its annual report, it was deduced that the company spent $1,403 per vehicle on actual repairs and kept $2,036 on hold for likely future repairs for the vehicles it sold in 2015.

In comparison with the auto-tech giant, General Motors spent around $400 per sold vehicle on warranty repairs and put $332 for future work. Meanwhile, German based Daimler spent close to $970 per vehicle and put $1,294 on hold.

Since the company will be stepping into the production of Model 3 sedan, next year, therefore it has to come up with ways to address the matters like quality control and warranty costs.

In February, Tesla’s Chief Financial Officer told analysts that the company’s vehicles have become more reliable which has slashed down the warranty cost for the company. He added, “That actually has a cash impact when the cars show up less at the service centers.”

Tesla Motors is scheduled to post its quarterly results on May 4 and the analysts will be closely scrutinizing whether the company managed to have positive cash flow for the year.

At the market close on Thursday, Tesla Motors stock stood at a price of $247.71. The 52-week range of the stock is $141 to $287.

Launch of Tesla's Model 3 Right Around the Corner:March 31, 2016

The auto-maker plans to launch its Model 3 on March 31; investors and analysts are quite excited about the event.

Analysts and investors have been long concerned with the long-term future of the auto-maker giant, Tesla Motors Inc. As March 31, 2016 is approaching the analysts and shareholders are getting excited as the most anticipated event by Tesla will be held at Hawthorne Studios where the automobile manufacturer will be introducing its Model 3 electric vehicle (EV). This event is considered to make or break the EV maker; however many are expecting that Tesla Motors will be able to gain back the trust of its analysts with the introduction of the latest vehicle.

In case the latest model by the auto-maker turns out to be a hit, which many are predicting it will be, the short sellers of the stock will be in for a tough time. Tesla Stock is expected to witness a big jump in its share price if the event works in favor of it. As per the latest data by Bloomberg, the company short interest stands at an all-time high of 34.05 million shares for the period that ended in February.

It seems that the stock price is bound to get up since there are a high number of shares in the short position and along with the big event coming up, the share price is certain to bounce. This ultimately signifies that the stock price will not just vault due to the event or the release of Model 3 but also because of the short squeeze – this short interest is equivalent to over 34.76% of the outstanding share in the company; making the stock highly expensive.

If the stock of the automobile giant continues to rise, more investors with short position are expected to borrow the stock which will lead to a rise in stock prices. Tesla Stock had been underperforming since the beginning of the year however it managed to bounce back after February 10 after announcing its fourth quarter financial results. Even since the announcement, the stock of the auto-maker has jumped by as much as 57% which blew up in the fact of those Wall Street analysts that had a bearish stance towards it.

Due to the lag in production and less deliveries of Model X, investors became quite confused with the performance of the company. It managed to sell 208 units of Model X which was lower than the company’s and analyst’s estimation. Because of the slow production of the electric crossover sports utility vehicle the stock price was affected. However, the CEO Elon Musk admitted that they made will making the vehicle and stated that they simply put too much technology and features into one vehicle.

As the event approaches, teaser picture of the latest car have started to surface. The company and its executive officer have chosen Twitter as the perfect platform to share these images, to create the necessary hype for the electric car in the market. For the first time, the organization is relying on Buzz Marketing as previously word of mouth strategy worked best for the giant. Furthermore, as per the report, Tesla has sent of 650 invites of the event to its customers.