Tesla Motors, Inc. 's TSLA stock, which was once a market favorite, has been underperforming this year. The share price had surged 344.1% in 2013 and 47.9% in 2014. However, the increase slowed down to 7.9% in 2015.
The stock has lost 11.1% so far this year. Tesla has been facing production related issues for a long time, as a result of which it has failed to meet delivery targets in the first two quarters of 2016. This, along with the losses incurred by the company, pulled down its share price. Tesla's stock was also affected by the announcement of the SolarCity acquisition, due to concerns regarding the losses of the latter, debts and cash outflow.
As a result, Tesla has been underperforming the Zacks categorized Auto Manufacturers-Domestic industry for most of the year. Year to date, the industry witnessed a 2.9% gain, which is in sharp contrast to the losses recorded by Tesla.
Is a Rebound on the Cards?
Tesla will be launching its first affordable car, Model 3 , in 2017, aiding the company to rebound, provided the launch is on schedule. The biggest criticism against the company has been its consistent losses. CEO Elon Musk is of the opinion that Tesla is unlikely to achieve sustained net profits until Model 3 enters its full-scale production.
While the company's expansion into the battery storage business helped it to lower losses to some extent, a change in the earnings reporting method helped it post a profit in the third quarter of 2016. Nevertheless, the company is still expected to record losses in 2016 and 2017.
Thus, the successful launch of Model 3 will play a key role in determining Tesla's performance next year. Since its partial unveiling, the car has seen strong demand and the company is likely to need at least an year to fulfill the number of pre-orders it has received. This means that Tesla's plan to increase production capacity also needs to be achieved on schedule. The company is planning to complete the acquisition of Grohmann Engineering early next year to help it reach the production capacity goals.
Apart from Model 3, Tesla's energy business will also play an important role in determining its profitability. While the Tesla Energy business is already generating positive gross margins, the launch of the new solar roof shingles might further augment the profitability.
Tesla also has several products in development stage , including heavy-duty trucks, to be named Tesla Semi, and high passenger-density urban transport, i.e. minibuses. It is also developing a compact SUV, to be named Model Y.
Additionally, Tesla plans to charge a small fee for the use of its Superchargers from customers who purchase a Model X or Model S after Jan 1, 2017. Though revenues from this source will be limited, it is likely to augment the bottom line.
The recent acquisition of SolarCity is expected to help Tesla attain savings of $150 million in 2017. However, the addition of SolarCity's debts and cash outflows will increase the strain on Tesla's financials.
Moreover, Tesla is investing heavily in increasing its production capacity, the development of Model X and Model 3, the Gigafactory construction and expansion of sales, services and Supercharger infrastructure. As a result, its expenses are expected to remain high in 2017, which will weigh on the bottom line.
Overall, with several positive developments lined up, Tesla's stock is likely to perform well in 2017. The shares might get a boost if the company posts positive fourth quarter earnings report. However, a lot more depends on the timely launch of Model 3 and expansion of its non-automotive business.
TESLA MOTORS Price
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.