To The Moon? Tesla’s Price Is Going To Mars

Tesla Wow’s Market With Q3 Results 

Love him or hate him, Elon Musk has taken Tesla NASDAQ: TSLA to new heights and the climb has only just begun. While the EV story here on earth is a compelling driver of the stock’s value, in our opinion it is the Mars angle that will keep it moving up over the long term. If you didn’t know, one of Elon Musk’s motivators is a dream to colonize Mars, a dream that is playing out in the form of SpaceX, the Boring Company, and Tesla. 

The Boring Company makes these fancy little tunnel-building machines that just so happen to match the diameter of a SpaceX Falcon-9 rocket. Putting two and two together, we see SpaceX launching a fleet of The Boring Company machines to Mars and building a complex system of pneumatically sealed tunnels filled with electric-powered Tesla vehicles. Sounds far-fetched, we know, but so did “space tourism” only a decade or two ago. Now we have billionaires competing to see who can do it the flashiest. And of course, there is all the peripheral technology Tesla is involved with, any of which could become the next billion-dollar industry. 

Tesla Takes It To The Next Level 

Elon Musk’s brilliance lies not just in his engineering ability but in his management style as well. The company was able to ramp production by 64% and deliveries by 73% over last year to drive not only record revenue but record profits as well. The company reported $13.76 billion in consolidated revenue for a gain of 56.9% over last year to the increase in production. The volume of sales was, however, impacted by a negative price mix that resulted in a lower average selling price. Regardless, the company reported a significant expansion in margins due to revenue and cost-leverage and we expect additional margin increases as production begins to ramp in the EU gigafactory. 

Tesla reports the automotive gross margin at 30.5% versus the consensus of 28.4% and there is only one negative within the report. The company’s free cash flow is reduced versus last year but is more than offset by an increase in CAPEX. Moving down to the bottom line, the company’s margin strength is seen in the earnings. Tesla reported $1.44 in GAAP EPS and $1.86 in adjusted EPS to beat the consensus by $0.28 and $0.25 and post earnings growth of nearly 145% YOY at the GAAP level. 

The best news, however, may have come out over the weekend and days after the report. The company is raising the prices of its models by at least $2,000 each which will more than make up the difference in the average selling price seen this year.

Wall Street Likes What It Sees In Tesla’s Q3 Results 

Wall Street liked what it saw in Tesla’s Q3 results and has been gushing ever since. Not only did the company receive a credit upgrade from S&P that puts Tesla debt at near-investment quality but at least 11 analysts have issued statements. Of those 11 every single one included a price target increase that puts the fresh consensus near $850. There was only one downgrade. That assumes the stock is overvalued trading at current levels but there are two things to consider. The first is that the 11 most recent price target increases include the second-lowest target on Wall Street which is only $250. Backing that out, the consensus is closer to $910 and the Marketbeat.com consensus which makes the stock fairly valued. The second is that the high price target is $1200 and the bulk of new targets are in the range of $900 to $1200. 

The Technical Outlook: Tesla Breaks Out, Is Going Ballistic Again

Shares of Tesla broke out to new highs in the wake of the Q3 earnings report and are on track to more sharply higher. Based on the recent consolidation range and breakout we see at least $300 in upside ahead of us which puts the stock at the $1200 Wall Street high-price target. Assuming the market consolidates at or near that level, and the good news continues to flow, a move above that level is more than likely.