Tesla Turns Bullish as China Factory Begins Deliveries

Tesla Turns Bullish as China Factory Begins Deliveries
January 6, 2020

 

The shares of Tesla, Inc. (Nasdaq: TSLA) hit a record high price of $454 on Friday, before closing at $443.01, up 2.96% or $12.75 from the previous close after the company reported vehicle delivery figures that met its full-year 2019 outlook range. The stock also received support from the news that the company’s Shanghai (China) factory is ready to commence production on January 7th. Again, it was in line with anticipations, indicating that the electric vehicle manufacturer can achieve aggressive timelines. The company also received a 10% purchase tax exemption for its Shanghai factory-built Model 3 sedans, a blessing for the company as it gets ready to start delivering locally manufactured vehicles in China. The stock has appreciated 84.6% in the past three months and 43.3% in the past one year.

During the fourth quarter of 2019, Tesla delivered 112,000 vehicles, which includes 92,500 Model 3 and 19,450 Model S/X vehicles. The company manufactured 104,891 cars in the fourth quarter, including 17,933 Model S/X vehicles and 86,958 Model 3 vehicles. Overall, in 2019, Tesla delivered 367,500 vehicles, reflecting an increase of 50% from the earlier year and in line with the company’s guidance range of between 360,000 and 400,000 vehicles. The company also pointed out that the announced figures are “slightly conservative” as only cars delivered to a customer with proper paperwork were counted as delivered, and the final figure could differ by up to 5%.

Before Tesla revealed the delivery data, Jed Dorsheimer, an analyst at Canaccord, stated that he anticipates impressive delivery figures. Furthermore, he issued a “buy” rating for the stock, while upwardly revising the price target to $515 per share, from $375 issued earlier.

Likewise, Daniel Ives had stated that he anticipates Tesla to easily reach its delivery target, led by the US consumer demand for the cheaper Model 3 vehicles and the strength in Europe. However, he maintained the neutral (“hold”) rating for the stock, issued last April 2019, and reaffirmed his target price of $370, reflecting a premium of about 14% from Friday’s closing price.

In his research note, Ives explains the reason behind his optimism regarding Tesla’s future prospects. “While we are still taking a wait-and-see approach to see how sustainable this level of demand/profitability is going forward, based on recent data points out of Europe/China we continue to move one step closer to believing this Tesla turnaround story is real.”

Last January, the Fremont, California-based vehicle manufacturer started building the Gigafactory in Shanghai, China. Investors and analysts acknowledge the professionalism shown in delivering cars a year after the factory construction began.

Basically, Tesla’s future is heavily dependent on the Chinese factory for two main reasons, namely size and taxes.

Notably, in the recent annual shareholders meeting, Tesla’s CEO Musk highlighted the importance of the Chinese market by saying, “China is the largest electric-car market in the world.” The CEO also pointed out the drawbacks faced by the company due to the import of various models of Tesla into China from the USA. Musk said, “And to date, we have had to pay import duties.”

Currently, import duty on Tesla vehicles ranges from 15% to 40% in China. Additionally, domestic production is necessary to receive electric-vehicle credits in the country. Across the globe, tax credits have been assisting electric vehicle manufacturers in boosting sales. The amount spent on the purchase of electric vehicles is greater than similar cars powered by non-renewable (fossil fuels) energy. However, cheap charging costs give an edge to electric vehicles over fossil fuel powered cars.

Since January 1, the US government stopped offering tax credits to Tesla buyers. US buyers will no longer receive a $1,875 discount for purchasing an electric vehicle. Buyers in California, however, will receive a rebate of $2,000 in the form of a tax credit. Therefore, receiving tax credits in China is crucial for Tesla.

The Chinese Ministry of Industry and Information Technology published the official list of models entitled for tax credits and Tesla was one among them. This implies Tesla buyers in China will have to spend less. Furthermore, Tesla’s model also qualified to receive Beijing’s subsidy of up to 25,000 yuan (~$3,600) per vehicle. Taking the tax credit and subsidies into consideration, Tesla slashed the starting price of Model 3 vehicles manufactured in China by 16%. In October 2019, Tesla had stated that Model 3 built in the China factory would cost roughly $50,000. The model will take on domestic manufacturers such as Xpeng Motors and NIO Inc., and also international manufacturers such as BMW AG and Daimler AG.

In his research report, Wedbush analyst Dan Ives acknowledges that short covering was one of the major reasons for the sharp rise in the stock price. Ives also highlighted an improvement in the company’s fundamentals. Ives wrote, “While part of this recent rally has been a massive short-covering, it has also been driven by underlying fundamental improvement as the company’s ability to impressively not just talk the talk but walk the walk has been noticed by the Street.”

Tax credits, subsidies, and a timely start at the Shanghai plant are anticipated to keep the stock to Tesla bullish in the short-term.

The historical price chart indicates that the stock is trading above its 50-day moving average. Furthermore, the MACD indicator is making new highs. Therefore, the stock of Tesla is expected to remain bullish in the short-term.

tsl - technical analysis 6th Jan 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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