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As Tesla grows will the stock slow?

Tesla Inc  TSLA

Summary (from latest annual report – 2016)

  • Total equity  : 4.75 billion USD
  • Market Cap is 45.3 billion USD ( last price of the stock is 277.37 USD)
  • Tesla Inc, formerly Tesla Motors Inc designs, develops, manufactures and sells high-performance fully electric vehicles and electric vehicle powertrain components
  • Equity of total company increased from 1.08 billion USD in 2015 to 4.75 billion in 2017
  • Company has 3.3 billion USD in cash on account (from latest annual report  2016 year)
  • TSLA balance sheet has become stronger in 2017 (In latest annual report - total equity increased to 4.75 billion  USD from 1.08 billion USD in 2015, short term debt is 1.15 billion USD , long term debt is 118 million USD)
  • Company's revenue increased in 2016 to 7 billion USD from 4.04 billion in 2015
  • Net loss in 2016 was 675 million USD, Net loss in 2015 was 889 million USD

 

Business and revenues should grow in the future but the price of the stock is expensive and risky

The company says that it plans to increase production to 500,000 units in 2018. Musk reiterated that Tesla was on track to begin production of the Model 3 by July and that production volume would reach 5,000 vehicles/week by the end of the year and 10,000/week in 2018. However, that seems a but of a lofty goal considering that it delivered less than 100,000 cars in all of 2016. As Gigafactory ramps production, Tesla's battery business will quickly become one of the company's most exciting growth initiatives. Musk has said that batteries could be as big of a business as cars in the future. As Tesla continues to improve its battery technology, reducing costs and improving supply (as Gigafactory 1 output ramps), revenue from energy storage will continue to grow exponentially going forward. If we subtract out $84.1M from the SolarCity acquisition, we can infer Tesla's 2016 battery revenue was $97M, up 572% from $14.5M in 2015. This is equivalent to 1.4% of Tesla's overall $7B in 2016 revenue. Tesla recently issued convertible bonds due in 2022 with a 2.375% coupon. According to analysts a real calculation shows that GM's cost of debt is half of Tesla's.

Despite the recent appreciation of the stock, I can't recommend it as a buy - cash burn raising concerns, the company is still not profitable and I think that they will have problems with liquidity in the future. Negative signs are that Goldman Sachs reduces Tesla to SELL and lowers its price target to under $200 in February.

 

Technical analysis

When we look at six months chart we can see that price of TSLA stock is moving in an "uptrend". As long the price is above this trend line and $250 this stock is in the "BUY" zone and  there is no indication of trend reversal. If the price falls on the trendline and if we get "bullish" confirmation candle it would be a very good entry point. Trend line represents very strong support level, if the price breaks this trend line( and $250) it would be a very strong "SELL" signal and we have an open way to $200. If the price jumps above $287 (short term resistance level) that would be a confirmation of "BULLISH" trend and open the way to $300.

 

Conclusion

The company's stated goals of 10,000 care per week in 2018 seems like a reach. As for Gigafactory ramps production, Tesla's battery business will quickly become one of the company's most exciting growth initiatives. Revenue for fiscal 2016 was $7 billion (an increase of 75% compared to 2015), the fundamentals of the company are not really good. I can't recommend this company as a buy - cash burn raising concerns, the company is still not profitable and I think that they will have problems with liquidity in the future. I would not recommend to invest in this stock currently ( even as short term trader).

 

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