Tesla Stock (TSLA): Why It More Than Doubled In 3 Months

By Amit Chowdhry ● July 29, 2020
  • Tesla’s stock price more than doubled in 3 months. These are the reasons why.

Ever since Tesla Inc (NASDAQ: TSLA) went public, the price has grown over 6,200%. On March 18, 2020, Tesla’s stock price closed at $361.22 and it is now trading at well over $1,450. Right before Tesla dropped to that $361 price point, it hit a peak of about $917.42, and then the economic crisis happened.

But the stock price has nearly grown 4 times as of now since that low price point so if you bought shares back then, you will be seeing a solid return.

What makes Tesla unique is that its stock price is traded like a technology company. It has a trailing twelve month P/E of nearly 200x. In comparison, the domestic automotive industry has a P/E of 28x.

Here are the P/E ratios of the largest tech companies: Microsoft (35.07 as 2020 actual), Amazon (148.46 as 2020 estimate), and Google (35.67 as 2020 estimate).

So why is Tesla’s stock price surging? Here are a few factors:

Q2 2020 Financial Results

Recently, Tesla announced its Q2 2020 earnings results. And the company crushed analyst expectations as it delivered a profit despite the economic crisis occurring during the pandemic.

This happened while all other automakers saw major losses due to drops in sales during Q2.

It’s worth mentioning that this was Tesla’s fourth straight quarter of profits. And it means Tesla hit its first full year of profitability on a GAAP basis. Revenue for the company hit $6.04 billion for the quarter.

One of the biggest reasons why Tesla reported higher revenues is due to revenue from regulatory credits. For the year ago quarter, Tesla reported $111.2 million in revenue from regulatory credits and that metric surged to $428 million for Q2 2020. Tesla is expected regulatory credit revenue to double in 2020 compared to 2019.

To continue driving profitability, Tesla is aiming to reduce vehicle product costs. And the company is aiming to generate more revenues from its software like the Full Self-Driving option. The Full Self Driving option is an advanced driver assistance platform that sells for $8,000 in the U.S. Through this platform, Tesla reported deferred revenues of $48 million during the period.

New Facility To Be Built In Austin, Texas

During the earnings call, Tesla CEO Elon Musk said that the company will be building a factory near Austin, Texas. At the facility, Tesla is going to build its Cybertruck, Semi, Model 3, and Model Y for the Eastern half of North America.

$780 Million Bond Deal

According to Teslarati, Tesla is planning to raise nearly $780 million this week in the bond market. The bonds are going to be backed by Tesla’s leased vehicles — which are mostly comprised of the Model S and Model X.

Tesla will be offering 8 classes of bonds, most of which carry top AAA ratings from Moody’s Investors Service. And the bonds will mature for investors in 2.7 years or less.

Volkswagen Executives Praise Tesla

Volkswagen Chairman Herbert Diess said that he believes Tesla could become the most valuable company in the world. Diess wrote that comment on his LinkedIn profile.

“Elon Musk delivers results that many didn’t think possible. They show that electric cars can be profitable. As one of the few automakers Porsche AG (e.g.), Tesla will drive through the Corona crisis without a loss quarter. It confirms to me that in five to ten years, the most valuable company in the world will be a mobility company – that Tesla can, Apple or Volkswagen AG,… Hot,” wrote Diess in the LinkedIn post.

Audi’s (a Volkswagen brand) new CEO Markus Duesmann also acknowledged that Tesla is two years ahead of the industry in building electric vehicles across critical areas.

“Currently, Tesla has larger batteries because their cars are built around the batteries. Tesla is two years ahead in terms of computing and software architecture, and in autonomous driving as well,” said Duesmann via Reuters. To effectively compete, Duesmann launched a new group at Audi to help move the company quicker like a startup.

Price Target Increases

A number of financial analysts have been increasing their price targets on Tesla over the last few months. Today Tesla received a new price target of $1,050 with an Underweight rating from Morgan Stanley. And Tesla received a revised bull case price target of $2,500 from Morgan Stanley. Previously, the price target was $740 and the bull case price target was $2,070.

“It’s becoming increasingly obvious that Tesla is going to become a very large company,” wrote Morgan Stanley analyst Adam Jonas in a report. “For the first time during our 10 years of coverage, we’re starting to model this company as a very, very large automaker.”

Disclosure: I own a small number of Tesla shares in my portfolio.