There is never a dull moment when it comes to Tesla Chief Executive Elon Musk. On one day, he's launching space capsules to the International Space Station. On another, he's opening a new auto manufacturing plant. And on another, he's jousting with Twitter (TWTR) in his bid to acquire the social media company. With all that, is Tesla stock a buy?
Tesla recently completed a 3-for-1 stock split, with the shares distributed on Aug 24, approved at the company's annual shareholder meeting.
The benefit of stock split is it makes investments easier for company employees and enthusiastic retail investors. They're generally seen as a bullish sign that implies strong execution from a business perspective. It will be Tesla's second split in just over two years.
Another important event at the company shareholder meeting came from comments by Musk. He touted Tesla's profitability, saying the company had achieved an industry-leading operating margin over the past year. That success stems, he said, from a "relentless pursuit of efficiency through factory design, automation and innovations."
Manufacturing Efficiency A Strong Advantage
Musk said Tesla's strongest competitive advantage may be manufacturing efficiency.
In addition, Tesla's greatest opportunity may lie in AI-powered robotics, not auto manufacturing or self-driving cars, said Musk. And Tesla is set to become even more efficient in the future.
The recently opened Gigafactory Berlin will reduce logistics costs by localizing the company's European operations, meaning fewer cars will need to be shipped to Europe from the factories in the U.S. and China. Tesla also plans to implement a technology that will cut battery production costs in half.
Looking ahead, Musk says Tesla could achieve a production run-rate of two million vehicles by the end of this year, and he reiterated the goal of 20 million vehicles by the end of the decade.
Huge Earnings And Revenue Growth
Tesla might seem like a pricey stock in terms of valuation. But the company has delivered huge earnings and revenue growth for several quarters in a row. Also, annual earnings estimates show the company's growth trajectory is still very much intact.
Tesla recently announced it had delivered 254,695 electric vehicles globally in the second quarter. That was down 18% from the previous quarter and missing FactSet estimates of 264,000. The slowdown was partly due to an extended coronavirus shutdown in China. Constraints around opening manufacturing facilities in Austin and Berlin took their impact, too.
Wedbush analyst Dan Ives raised his price target on Tesla on the day of the 3-for-1 split. He raised it to a split adjusted 360, from 333. Ives did so based on the stock split as well as "improved production from Tesla out of its key China Giga factory during the September quarter with clear momentum heading into year-end," Ives wrote in a note to clients.
"Demand is not the problem for Tesla, but supply has been and is now clearly on an upward trajectory with China on its next level of Model Y production while Berlin and Austin ramp their production lines into year-end."
Second-Quarter Results Were Mixed
On July 20, Tesla reported mixed second-quarter earnings, as the electric-vehicle maker dealt with plant closures in Shanghai and supply shortages.
Tesla said adjusted earnings jumped 57% from the year-ago period to $2.27 per share. Analyst expected $1.81. Revenue soared 42% to $16.1 billion but below expectations of $16.54 billion. Tesla stock gapped up 9.8% on the report.
Tesla competitors include Rivian (RIVN), General Motors (GM) and Ford Motor (F) in addition to its China rivals.
Also, now that Tesla is making cars in Germany, it will go head-to-head in electric vehicles with three established German names: Volkswagen Group (VWAGY), BMW (BMWYY) and the Mercedes-Benz division of Daimler AG (DDAIF).
Is Musk Biting Off More Than He Can Chew?
It can be argued that no CEO has taken on more responsibility than Elon Musk. In addition to running Tesla, Musk is also founder and chief executive of SpaceX, which has a stated mission of colonizing Mars. SpaceX also owns and operates the Starlink satellite internet network. Musk is also founder and CEO of tunnel maker the Boring Co. Further, Musk runs Neuralink, which seeks to tie human brains to computers.
With all that going on, Musk watchers say he may have overextended himself with the plan to buy Twitter. In that regard, dropping that plan could have benefits.
Tesla is not a buy at this time. It has hit resistance at the 200-day line, so the short-term outlook is poor. After a strong July, this pullback is not surprising, and the stock is well below prior highs.
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