Tesla (NASDAQ:TSLA) has seen its stock price rise by 92% since its low point in June, but no stock has investors so confused about where its future lies. Morgan Stanley (NYSE:MS) released an analysis which stated that Tesla could rise nearly 50% to hit $500 per share in the best case scenario and crater to $10 in the nightmare scenario.
In order to figure out where Tesla is going to go, we should step back to figure out how Tesla’s fortunes have changed so much over the past year. Tesla lost nearly half of its value from December 2018 to June 2019, but then surged to end up close to its starting position today. What caused the fall and then rise?
The Future of Electric Vehicles
Investors can point to this or that incident which has affected Tesla’s stock value, from Musk’s ill-fated attempt to take the company private that saw the SEC intervene to the recent Cybertruck design which would be fit for a Cash for Cars NJ. But the fundamental reason why Tesla fell and rose is production and innovation.
Tesla’s bet has been that its Model 3 sedan will take the company out of the luxury vehicle market into the mainstream. But at the beginning of the year, the Model 3 suffered from production and delivery issues, which even now have not been completely resolved. In July, CNBC reported that Tesla workers claimed that Tesla took shortcuts and forced the workers to endure harsh conditions in order to meet their production goals.
Investors have also been concerned with how Tesla has decreased its R&D spending. This will put a further damper on its self-driving vehicle which took another blow with recent news that a Tesla vehicle struck a parked police driver when on autopilot mode.
But these concerns seem to be blown away by a single word: China. China aims to become a leader in electric vehicles as it battles pollution and climate change, and Chinese EV manufacturers have been facing setbacks. Tesla has stepped in to help fill the demand as it opened its Gigafactory 3 and is already producing 1,000 Model 3 Sedans per week.
As a result, Tesla has reported solid quarterly numbers, with earnings numbers surpassing expectations and the company is doing better in terms of profitability. And Tesla proponents claim that the stock has far more room to keep growing with the China market.
Standing up to Competition
Morgan Stanley’s rosy estimate said that Tesla could rise if its business in China can pick up steam and if the new Cybertruck can be successful. However, these are some big ifs. There is the threat of competition, as more established automakers develop their own electric mass-market vehicles. There is the continuing tension between China and President Trump. There is the possibility of that China will not be as lucrative a market as Musk hopes.
Either way, it is important to keep thinking in the long term and not get spooked by sudden rises and falls. Tesla will certainly be a volatile stock one way or the other. A sudden rise does not mean it has defeated Ford, nor does a sudden fall mean that will crash to that $10 target.