Why Tesla Stock Is Down (Nasdaq: TSLA)

why Tesla stock is downTesla Motors Inc. (Nasdaq: TSLA) stock tumbled as much as 9% Wednesday. As of Thursday it's down about 14% year to date.

Yesterday's plunge stemmed from concerning words from Chief Executive Officer Elon Musk: The company might not be profitable until 2020 and that sales slowed in China amid charging concerns.

Tesla stock fell to $185 (yesterday's low) right out of the gate. Some 7 million shares had already changed hands, well above the stock's average daily volume of 5.5 million, with four hours left in the session.

Just before the closing bell, TSLA clawed back gains and was down just 5.77% at $192.46.

So does Musk's news mean Tesla stock is doomed in 2015? Let's take a look...

Why Tesla Profits Are on Hold

Musk's dispiriting comments came Tuesday when he spoke at Detroit's annual Automotive News World Conference.

Musk explained to the crowd of industry experts, including General Motors Co. (NYSE: GM) CEO Mary Barra, Jaguar CEO Joe Eberhardt, and Google Inc.'s (Nasdaq: GOOG, GOOGL) director of self-driving cars, Chris Urmson, that he isn't running after short-term profits. He said Tesla continues to invest in growth and new models.

He added the company likely won't make money on a net basis until the next decade when annual sales hit 500,000. That's when Tesla's lower-cost Model 3, which could sell for about $30,000, will be in full production. The Model S sells for $70,000 to $100,000.

Scheduled to debut in 2017, The Model 3 can travel 200 miles on a single charge. The pricier Model S achieves roughly 300 miles per charge at highway speeds of 55 mph.

Musk expects Tesla will be making "a few million cars" by 2025. That would make Tesla about the size of BMW today. Such robust sales volume forecasts are above any Musk has discussed in the past.

Still, prospects that Tesla won't be in the black for several more years had many investors heading for the exits. Founded in 2003, Tesla has yet to turn a profit.

"Before this statement, investors may have speculated that a real profit might come in 2017 or 2018," Maryann Keller, an independent automotive consultant in Stamford, Conn., told Bloomberg. "Now they can see they may have to wait for five years."

Investors will also have to wait a while longer to see the TSLA stock price move based on this potential catalyst...

TSLA's China Story Will Change

"China was a lot weaker than expected," Musk said.

He was quick to note that right now just a small percentage of its sales come from China. Moreover, Musk says sales lost in China are more than made up for in Europe and North America.

He also described the market in China as "a wild card that seems to change for reasons we don't understand."

Chinese consumers have been hesitant to switch to electric vehicles because of reliability issues and a lack of charging stations.

But that's set to change. China could prove to be a bright spot for Tesla not too far down the road.

China is stepping up efforts to mitigate air and water pollution and do its part to cut global warming emissions.

The Asian nation recently announced plans to have 5 million electric cars on its roads by 2020. The key issue will be how to supply enough charging stations to fuel those cars.

China's government said in November it would boost incentives to city governments to speed up progress in constructing EV charging facilities. The central government reportedly plans to spend as much as 100 billion yuan (more than $16 million) to build charging facilities and spur demand for new-energy vehicles.

There's more good news for Tesla - and investors - on the horizon. Strong demand for its vehicles is only expected to increase...

Sales Still Growing Despite Low Gas Prices

Sales of Tesla's Model S luxury electric car - its only vehicle - were vigorous last year. The company projects sales to grow 50% this year.

Musk side-stepped questions about just how many cars Tesla is selling. He did say the company's sales target for 2014 was 33,000 vehicles - a tally it cruised through. "We sold, in terms of cars, far more than that [33,000]," Musk noted Tuesday.

Juicing sales was the Model S's redesign to offer all-wheel drive, as well as some cosmetic tweaks to the car.

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Tesla's $5 billion battery factory under construction in Nevada will also spur Tesla's growth. Tesla has teamed up with Panasonic to build the Gigafactory, which will produce batteries for the forthcoming Model 3. The factory will also build stationary solar-power storage units. Musk believes they are a vital part of a shift toward renewable energy sources.

Musk dismissed concerns that falling gas prices make electric cars less attractive. He said even as gas prices have sharply fallen this year, on top of last year's decline, demand for the Model S remains strong.

In fact, Musk said in early November that Model S cars in production in 2015 are already sold out. Musk said Tuesday Tesla is upping capacity to make more.

Tesla stock was trading at $192.95 at noon Thursday. It's fallen more than 33% since the all-time high it hit in September.

But as we've stressed at Money Morning, TSLA stock is not for conservative investors. The price swings are too volatile. Its growth is a very long-term story.

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