Technology

Can Tesla's Model S Plaid Drive TSLA Stock Higher?

Tesla
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Tesla (TSLA) stock didn’t respond the way investors expected, with the shares falling on Friday, even after the electric vehicle pioneer lifted the veil off its souped-up version of its Model S Plaid sedan late Thursday night at an event in Fremont, Calif.

Tesla stock closed Friday at $609.89, down 0.04%. While the stock added 1.3% last week, it still has tons of ground to make up. Down 1.12% over the past thirty days, TSLA shares have lost 13.6% this year, trailing the 13% rise in the S&P 500 index. And when comparing TSLA stock performance to Ford (F) and General Motors (GM) which have gained 74% and 48% year to date, respectively, the decline in TSLA stock is even more notable. But can the Model S Plaid help drive TSLA stock higher?

Built in the same mold of the Model S sedan which began selling almost a decade ago, the "Plaid" version features not only a redesigned interior and yoke steering wheel, the Plaid is also much faster and more expensive. With the ability to accelerate from zero to 60 miles per hour of under two seconds, Tesla CEO Elon Musk has touted the Plaid to be the fastest production car ever built. That’s all well and good. But can the vehicle’s production and deliveries enhance Tesla’s operating fundamentals, including the cannibalism that has occurred among new products?

For example, it’s great that Tesla's cheaper and more cost-effective sedans such as the Model 3, and the company’s newest offering, the compact SUV Model Y, have been widely popular. At the same time, these cheaper models have come at the expense of the more expensive Model S, which hurts Tesla’s profit margins. Given that the Plaid is more expensive, starting at $131,100 price tag, Tesla will need to produce and deliver a higher percentage of them to offset the cannibalistic effect of the Model 3 and Model Y.

Wall Street has been broadly positive about the Model S Plaid. While reiterating its Buy rating on TSLA stock, Goldman Sachs on Friday spoke enthusiastically about the Plaid’s potential and differentiated effect for Tesla. “While the market for the Plaid itself is relatively small, we believe it is an important product given that the Model S Plaid helps illustrate Tesla’s technology leadership position, which we consider one of the reasons for its strong share in EVs," noted the firm on Friday.

One example of Tesla’s technology leadership is the Plaid's new electric motor, which has "carbon-sleeved" rotors. Essentially, to overcome some of the pressure on high spin rates, Tesla engineers sheathed the copper coils in carbon. Likewise, analyst Dan Levy at Credit Suisse also applauded the launch of the Plaid. "The significance of the launch of Model S Plaid is to remind us that while Tesla has grand volume aspirations, the DNA of its brand is performance," noted Levy.

While maintaining his Neutral rating, Level still questioned whether the Plaid — when compared to the Model 3 and Model Y — can push the needle far enough to affect Tesla’s profit margins in a meaningful way. These questions, including those related to new batteries, might not be answered for several quarters. But the company said Plaid deliveries have already begun, along with expectations to produce about about 1,000 Plaids per week in the coming quarter.

All told, the Plaid unveiling demonstrated Tesla’s engineering capabilities and its affinity for luxury in its pursuit of higher performance. Investors such as Cathie Wood's ARK Investment Management, which has an ETF with a large stake in Tesla, are hoping TSLA stock performs commensurately to the Plaid’s speed.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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