Tesla Inc ( TSLA ) stock has more or less moved sideways in the last 12 months, currently sitting slightly in the red. The good news for Elon Musk's company is that revenue has expanded in recent years - from $900 million to $2.2 billion. The bad news is that the company's selling, general and administrative costs have almost exactly mirrored that expansion.
For the current quarter, Tesla is expected to lose $3.58 per share - almost three times its loss during last year's comparable quarter. For the current full year, the loss is supposed to tally $7 - a slight year-over-year improvement, but still nothing to write home about.
Musk Makes More Promises
Tesla stock investors' ears perked up this weekend, as Elon Musk was talking about its Model 3, which Musk has been boasting will bring the Tesla brand to the mass market. Production as been delayed, though, and there's no hard date for the release of the bare bones version of the car. Musk said it will ship three to six months after Tesla begins making 5,000 of the car per week - hopefully in late June.
As The Verge pointed out , the base price of the car is $35,000, but the first version being produced will have upgrades than tack nearly $15,000 onto that price. That's not as cheap as Musk may need to get the masses on board.
Still, investors appeared to like what they heard from Musk - most likely because he also announced a $78,000 performance version of the car comparable to the high-performance BMW 3-series. Expensive cars could help Tesla stock recover, the thinking goes. "3.5 sec, 0-60mph, 155 mph top speed, 310 mile range"…."will beat anything in its class on the track," Musk tweeted Sunday.
Despite its potential, the Model 3 has been a bit of a thorn in the side of Tesla. The hyped car has run into production troubles to the point that Moody's downgraded Tesla's debt to junk status this year. Still, investment bank Berenberg seems to think Tesla's struggles are behind it and that the Model 3 will deliver as promised - including a swing to profitability in the last two quarters of the year.
Tesla Stock Upgrade
Berenberg raised its price target on Tesla to $500 per share, predicting the company will indeed be able to achieve a 25% gross margin from the new car, especially as production gets more efficient. That's about 80% upside from where Tesla stock currently sits.
"The widespread assumption that Model 3 margins can be directly inferred from Model S/X is inherently and almost totally flawed. Substantial gains from lower labor content, as well as capital and material use efficiencies, should allow Tesla to comfortably achieve a margin above 25% throughout the product cycle," analyst Alexander Haissl wrote .
The Bottom Line for Tesla Stock
A few percentage-point pop for Tesla stock still wasn't anywhere close to enough to get the stock back into the black for the last 12 months - and it's nothing compared to that prediction. But loads of question marks remain about TSLA stock. A bet on the Model 3 and a swing to profitability for a few quarters is a risky gamble.
As everyone knows, more risk means more potential for gains.
But be smart about allocating too much green towards Tesla off the word of one excited investment bank when there's been hurdle after hurdle for the Model 3.
As of this writing, Robert Martin did not hold a position on any of the aforementioned securities.