A brief run-through of Tesla

Tesla's relatively short history already had a share of hardships so large it caused traders to go from "buy and never sell" to "forget about it", and back. Ever since its opening bell on June 29 of 2010, Tesla became the first car company to go public in the U.S. since 1956.

The frenzy of events surrounding the electric car company was downright brutal (although exciting!). Without a doubt, it was mostly thanks to the specific persona of Elon Musk. Amidst weed-smoking videos, Wall Street analysts shaming, SEC investigations and countless Twitter fiascos; investors hardly grew fond of the CEO's extravagant personality, inevitably leading to the stock's frantic behavior.

Nevertheless, as the rest of the market got left behind with the tech sell-off, driven by FAANG stocks (Facebook, Apple, Amazon, Netflix and Alphabet), Tesla started once again to appeal to some as a viable buying option.

Quarterly revenues went up 128%, from last year's $2.98 billion loss, to $6.82 billion - a growth not anticipated by analytics. Equally unexpected was also the shift from a $2.92 loss, to a $2.90 gain. So what is this all about, and is it sustainable?

In his most recent interview, Elon Musk admitted that the company "came within single-digit" weeks of dying before it was able to meet its Model 3 production goals. After months of hard work, the numbers speak for themselves. The company improved revenues, share prices, gross margins and reduced operating expenses.

Additionally, Tesla's Model 3 has become the best-selling car in the U.S. in terms of Q3 revenue, leaving the industry's giants - like Toyota or Honda - eating its dust.

Musk stated that from now on, positive earnings are expected from quarter to quarter, especially as operations are now profitable and the new car will also launch early next year in Europe and China. Currently, the car is sold for $45,000 - it's expected to be lowered for the mass market, to as low as $35,000 in 2019. All held constant, the question is whether traders can take the CEO's word for it? We can't rely on it.

Lack of Transparency

Although finally admitting the recently disastrous state of the company, Musk's previous statements on profitability were far from transparent. This has caused strained relationships not only with investors, regulators and suppliers, but even with his own employees.

During the second-quarter earnings conference, in August, he publicly declared "We're not in any kind of cash shortage at all". In November he then said that "Tesla really faced a severe threat of death. Essentially the company was bleeding money like crazy", which hardly make his statements trustworthy.

Regardless of Elon Musk's agenda (which is to this day unclear), we have to assess the prospects of the company, given all we know. Despite Tesla's problems, its followers seem to be way too loyal to jump ship at the sight of trouble.

Production Issues

At the moment there is no doubt that Tesla faced serious production issues, and there is no guarantee that in the long run they will be able to compete with giants like General Motors. Simply because they lack the means to pull such an act. After the positive recent report, they seem to be under more pressure than ever, to prove they can remain profitable, as the Model 3 production increases and new models are being introduced.

Additionally, the 70% sales loss from the Chinese market in October 2018, compared to last year's result, hardly says anything positive. They reported only 211 cars sold in October in the world's largest auto market - a depressing number.

On the other hand, given the trade war, a decline seems fairly logical, and it seems that Elon Musk is trying to mitigate it. He already announced that Tesla will cut prices of Model X and Model S cars in China to make them more affordable. He also secured the site for his factory in Shanghai in an effort to avoid the steep tariffs.

Nevertheless, this hardly makes the stock appear less risky. Added expense, lower profits...What will the next quarter bring? If GM and several others are too big to fail, the same can hardly be said about Tesla.

Grand Mission as Core

The grand mission of electric energy for vehicles has certainly been the centerfold of Tesla's message. Its founders have been propagating this all along. Truthfully, although it's a discussion far from new, this fall's UN special panel report on climate change showed such frightening figures that it became obvious things needed to change now. According to them, unless humanity leaves fossil fuels behind, disaster will strike as early as 2040, which is just two decades away.

Does this necessarily mean that Tesla is the future?

All in all, many investors consider Q3 2018 results to be Tesla's turning point. No matter what, it has finally managed to meet its production promise of 5,000 cars/week. The promise of profit has also been achieved (better late than never).

What's wise to note though: competition in the market gets fiercer by the day. Volvo is planning to electrify all its cars through 2019. Audi, Mercedes, Porsche and Cadillac share plans to launch EVs within the next two years. The Jaguar i-PACE electric SUV is already up and available. Even BMW appears to have awakened with a new BMW i14 to come out in 2021! All these along with the Chinese NIO, which is already delivering across the Pacific.

Sure, it's great to see all the car companies working together for humanity's sake, but what does it mean for Tesla? If it won't be able to measure up to expectations, it could be left behind as nothing but a mere pioneer with an unsuccessful production plan.

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This article was submitted by Stratton Markets