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Tesla's Stock and Finances
After Tesla Inc. (NASDAQ: TSLA) reported this year's first-quarter losses in April, everyone was talking about the company's finances. Tesla's stock was plummeting. And the report showed that Tesla was bleeding money. Six hundred and sixty-eight million dollars of it be exact. In one quarter.
For comparison's sake, Lyft reported a loss of $911 million for all of 2018. Tesla's CFO, Zachary Kirkhorn, described this year's first quarter as "one of the most complicated… in the history of the company." As a result of those complications, the stock has steadily declined. But since June, it's been a different story.
On June 3, Tesla's 2019 skid bottomed out at $179. Since then, Tesla has steadily climbed. As of today, the stock is now trading at $254 per share.
Part of the rebound is thanks to Tesla's price cuts. The most popular vehicle in the Tesla fleet, the Model 3, now goes for a reasonable $38,990. Demand for the Model 3, Tesla's cheapest vehicle, is rising around the world. The Model 3 alone represented 60% of the United States electric vehicle market in 2018. After the price cuts, Model 3 sales should increase and take Tesla's stock with it.
The Chinese Market
Tesla's expansion into the Chinese market also explains Tesla's climbing stock. The country with the biggest sway in the electric vehicle market is China. China sold 1.1 million electric vehicles in 2018 and is now on track to sell over 2 million this year. The Chinese government declared that 20% of the country's cars will be electric by 2025.
Tesla is aware of the massive potential in the Chinese market. And the company plans to capitalize quickly. By the end of the year, Tesla plans to start manufacturing cars for China out of its Shanghai factory.
Keep in mind, construction only began on the "Tesla Gigafactory 3" in December 2018. Many doubt Tesla can start manufacturing cars this year. But a team of Morgan Stanley analysts wrote, "Tesla may be able to ramp China production faster than we have currently anticipated in our model." The analysts expect production in Shanghai to begin in November.
The factory is likely to make 35,000 to 40,000 cars by next year and around 60,000 in 2021. Tesla is producing a big supply of cars. But does it match the Chinese demand? Tu Le of Sino Auto Insights, a Beijing-based consultancy, doesn't think so.
"I think supply is going to outstrip demand over the next 24 months, especially if the economy stays slow and the auto market doesn't grow," he said. Tesla is preparing for this possibility by being financially prudent. During a conference call with analysts, Elon Musk said the company is on a "spartan diet." Musk walked the walk this January when he laid off over 1,000 employees.
Tu Le commended the layoff: "I feel he's preparing for battle as much as he's looking at his balance sheet and seeing gross margins and seeing they're not where they need to be."
Tesla's stock is climbing again, and it has a lot to do with China. When the company's Shanghai factory opens, Tesla could begin to dominate the Chinese market, and the stock could shoot up.
Electric vehicles are only becoming more and more popular. JPMorgan Chase & Co. (NYSE: JPM) estimates that by 2025, electric vehicles and hybrid electric vehicles will make up 30% of all vehicle sales. The market is clearly growing, and Tesla is ahead of the pack.
Right now, Tesla's stock is well off its 2017 high. This presents a potential buying opportunity. Now could be a great time to add Tesla to your portfolio.