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Will Tesla deliver on promises?

The big question hanging over Tesla is whether the company's quarterly figures will vindicate the degree of investor interest and gains in the stock price this year.

A Tesla booth
Source: Bloomberg

Markets are expecting to see Tesla post $0.045 earnings per share for its second quarter, with sales jumping from $713 million in Q1 up to $809 million in Q2. This should be coupled with the company reducing its pre-tax losses of $48.99 million down to $34.68 million. In the same period a year ago, the company earned $0.20 per share, with $551 million in revenue.

Referred to as a ‘momentum stock’, the swings in price have not been without volatility. Rapid growth and modest profitability is a common theme of this genre of equity – which includes some tech and social media companies. It should not therefore surprise that the company’s meteoric rise has its critic; this is reflected in the mixed bag of current broker recommendations. 

With a buy/hold/sell rating of 5/8/3, and a twelve-month target price of $231.30, an upside of just 1.7%. This confirms the underlying market sentiment that the company is still at a crossroads.

When one considers that, this time last year, the share price was a mere $128 and that the stock has gained 49%, this year alone hitting a record high of $265 at the end of February, it may help to explain away the conservative forecasts.

Having suffered logistical problems with the implementation of new production procedures, Tesla saw its first-quarter car production figures drop. In order to maintain its rate of growth, a sizeable boost is required this quarter or next.

The other big nut that Tesla is trying to crack, on top of production volumes, is the US market. Numerous states in the US have been reluctant to provide the appropriate incentives for an eco-friendly company like Tesla. In comparison to costs in Europe, petrol in the US is still far cheaper and fuel efficiency, when deciding what car to buy, does not tend to top the list of priorities. In fact, the cost per litre of petrol is more than double in the UK. Crucially, deliveries in Europe appear to have petered out, which could be a worrying sign.

It is China, the world’s largest luxury car market, that will be the real driver of performance. Analyst forecasts have aimed for deliveries in the second quarter to be in the 7,500-7,800 range, with the overall goal for 2014 being 35,000 deliveries.

Plans to enter the mass-market with the production of the new electric Model 3, intended to rival the ever popular and ‘sales executive’ classic BMW 3 Series, may help propel sales into the six figures by 2020 – well above the 35,000 that Tesla CEO Elon Musk plans to sell this year. 

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