Tesla (NASDAQ:TSLA) is having a monster 2020. The stock is up by over 88% year-to-date and it is outpacing every other asset in the world, including the bullish bitcoin. So far, TSLA is showing no signs of slowing down.
While the stock looks strong from a technical perspective, it appears that the company is flashing weak fundamentals for the first quarter of 2020. That’s according to renowned Tesla bull James Stephenson.
Stephenson conducted a comprehensive review of the company’s 10-K before making two key predictions.
Stephenson is predicting a close to $200 million GAAP loss in the first quarter due to lower deliveries. He provides two key reasons why Tesla will suffer setbacks in deliveries.
First and most important is the expiration of U.S. tax credits for buying an electric vehicle. The tax credits for Tesla expired in December 2019. As a result, Stephenson says that deliveries stalled for the month of January 2020. This created a logistical nightmare that limits the company’s ability to deliver units.
The second reason is the threat of the coronavirus. Stephenson states there’s “downside risk” should the virus prove to be an obstacle in production and sales.
Mati Greenspan, founder of Quantum Economics, thinks that coronavirus might negatively impact Tesla’s production. When asked if he believes whether the virus will reduce the EV company’s ability to deliver units this quarter, Greenspan replied,
Yes, probably. The Shanghai factory is designed to produce about 1,000 vehicles a week, if not more.
Hatem Dhiab, managing partner at Gerber Kawasaki, shares the same view. He told CCN.com,
For Tesla, the [Shanghai] plant is brand new and they don’t have a huge output coming out yet. But whatever goals they have for the plant, I’m sure they will also be impacted. There’s absolutely no reason to ramp up production when there’s so many unknowns around this virus.
Meanwhile, Jason Harris of StockHunterTrading.com doesn’t think that the coronavirus will put a dent in Tesla’s sales. He told CCN.com,
Overall, China is such a small part of their business right now. If the demand is there, they will find a way to deliver the cars, possibly re-routing some US inventory over there.
Should Stephenson’s predictions come to pass, it will likely result in a significant correction in TSLA. The Tesla investor says that a weak first quarter may provide an opportunity to buy at a discount.
After a weak first quarter, deliveries will pick up for the electric car manufacturer. From 96,310 in Q1, deliveries will soar to 144,094 in Q2, 163,669 in Q3 and 189,762 in Q4. According to Stephenson, the ramping of the GF3 and the Model Y will help boost company profitability.
If Stephenson’s projections are correct, total deliveries will outpace the guidance of 500,000 deliveries for 2020. It appears that earnings per share (EPS) would skyrocket after the first quarter. From an EPS of $1.23 in the second-quarter, the Tesla bull predicts that the EV company would print an EPS of $8.68 in the fourth-quarter.
These figures would give TSLA a solid narrative for a strong push before the end of the year.
Overall, Stephenson forecasts $13.11 EPS in 2020 and $2,622 share price. That’s a meteoric rise of over 227% from the stock’s current price.
On the flip side, TSLA is extremely overbought in both the monthly and weekly timeframes. This alone suggests that the stock will go through a period of significant correction and consolidation before it can resume its uptrend. That would take a lot of time.
Also, Tesla is raising $2 billion worth of capital through a stock offering, which could put a dent in the share price. Lastly, Tesla’s price-to-sales ratio stands at a whopping 5.635. This means investors pay $5.635 for every dollar of sales. This figure would skyrocket if TSLA is valued at $2,622.
Stephenson’s target price for the stock is ultra bullish. Technical and fundamental factors show that it’s unlikely that TSLA hits that target this year.
The above should not be considered trading advice from CCN.com. The writer does not own Tesla shares. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.