Watch Out for a Tesla Investing Opportunity

Investing in Tesla stock (NASDAQ: TSLA) is not for the faint of heart. The stock price is volatile, often making large swings in response to the latest news. So far, though, the stock has richly rewarded patient investors, who have seen the stock price increase nearly 10-fold in the last four-and-a-half years.

What drives the stock price up is the star power of Elon Musk, Tesla’s CEO. Musk is a visionary whose goal is nothing less than to change the world. The sleek, luxurious, technologically advanced, and environmentally friendly electric Tesla vehicles are a part of his larger plan.

Sometimes, though, Tesla’s stock price takes dizzying nose dives. That happens when doubts start to surface that the company will be able to execute Musk’s vision in a way that will be as profitable as expected. Things that send the stock price down include concern about increased competition from other auto makers who are also introducing electric cars, lower gas prices leading to lower demand for electric vehicles, slower company growth, missed production estimates, and safety concerns.

A lot of investors’ hopes have been riding on the introduction of Tesla’s new Model 3. Before the new model hit the market in July 2017, Tesla’s vehicles were all high-end luxury items, with the base price for a sedan starting at about $70,000. The Model 3 is Tesla’s first mass-market car. While not exactly cheap with a base price of $36,000, the potential market for the Model 3 is much larger than for the previous models.

That’s why there was considerable interest in Tesla’s report of third-quarter Model 3 deliveries, which the company released on October 2, 2017. The news was not good. The company said there were “production bottlenecks,” that caused the delivery and production of Model 3 cars to be much lower than expected.

The market, however, took the news in stride. After a small drop, the share price rose a few percentage points over the next few days. It looks like some investors are using the strategy of buying TSLA when there is bad news to get a bargain in the share price.

Even though the dip came and went in the blink of an eye, this still could be a good opportunity for risk-tolerant investors to buy or increase their TSLA holdings. Had the Model 3 production numbers met expectations, most likely the stock would have soared. The market’s subdued response presents a relative bargain. If future production numbers are better, investors may pour into TSLA, sending the share price spiking upwards.

One factor to consider when deciding whether to invest now is how serious you think Tesla’s “production bottlenecks” are, and whether they are likely to continue. The company has said that there are no “fundamental” problems with production and that it knows what it needs to do to fix the bottlenecks.

Should you decide to invest, look for temporary dips in the price. TSLA tends to over-react to minor news reports, so any dip in the near future could be a good buying opportunity.

Just remember that investing in TSLA is only for those who can tolerate risk. The potential rewards can be — and so far, have been — astonishing, but there is also the chance that TSLA may act like a bubble stock and suddenly deflate. Analyst opinion is all over the map. One analyst initiated coverage of TSLA after the disappointing production report with a lofty price prediction of $500. Other analysts urge caution, pointing to problems with cash flow and increasing competition from other auto makers. The company could also take a huge hit if the Model 3 turns out to be less popular than expected.

For the risk-tolerant, TSLA could provide an exciting and profitable ride. The stock is up approximately 60 percent so far this year. The same report that showed disappointing Model 3 deliveries also showed better than expected delivery numbers for the Model S and Model X.

If the Model 3 is a success, it will give Tesla vehicles far more exposure to the general public than they have had before, which could set off a positive cycle of increased awareness, interest, and sales in the mass market.


Ethan Warrick
Wealth Authority