Source: PaxForex Premium Analytics Portal, Fundamental Insight
When Tesla recently reported first-quarter deliveries, the U.S. market did not have a chance to react to what was happening as the stock market was closed for the occasion of Good Friday. The figures easily beat analysts' expectations, even though production of the company's flagship Model S and Model X vehicles has been halted as Tesla is retooling those production lines for the updated versions announced earlier this year.
The increase in deliveries to 850,000 in 2021 would represent a significant increase from the 500,000 cars Tesla delivered in 2020. Tesla gave mixed guidance when it reported fourth-quarter earnings in January, saying only that it expects deliveries to increase by an average of 50 percent a year over a "multi-year horizon." In some years, deliveries could grow by more than 50%, and the company expects that to happen as soon as this year.
In fact, Tesla stock was up nearly 4% on Monday. The gain followed analysts' announcement of a significant rise in the stock price. Canaccord Genuity analyst Jed Dorsheimer now believes the electric car maker's stock could soar to $1,071 within the next 12 months.
After hitting an all-time high of just over $900 earlier this year, the stock fell sharply in February and early March. Did this pullback create a favorable buying opportunity?
Dorsheimer more than doubled his price target for Tesla, raising it from $419 to $1,071. The analyst also altered his rating on the stock from a hold to a buy.
Even though Tesla gets most of its revenue from electric car sales, today's stock rise can be explained by analyst`s optimistic view on the company's solar power and energy storage business. He thinks Tesla's energy production and storage business could generate $8 billion in revenue annually by 2025 through an "apple energy product ecosystem" and "harmonized electrification." Dorsheimer believes that as Tesla addresses the battery cell shortage it faced in its last quarterly review, the company is well-positioned to grow the business through sales of its energy storage products. Additionally, also Dorsheimer is sure that Tesla is several years ahead of its competitors in energy storage, which gives it an incredible advantage.
Even though Tesla's electric vehicle business gets more attention than its energy storage business, since that's where most of the company's sales come from, energy storage deployments actually increased faster than electric vehicle sales in 2020. The total number of energy storage systems deployed, measured in gigawatt-hours (GWh), grew 83 percent year over year to 3 GWh in 2020.
"This growth was driven primarily by the popularity of Megapack, our industrial-scale energy storage product," Tesla told investors in its fourth-quarter report. "Demand for the Powerwall continues to grow as the residential business grows."
Impressively, this growth has come at a time when manufacturing has been limited. "Our energy storage business continues to limit supply as the backlog remains strong," company officials said. But the company's efforts to increase battery production will help boost supply "over the next few months." So the automaker expects its energy storage business to grow at about the same pace in 2021 as it did in 2020."
The company's solar panel business is growing more slowly, with solar megawatts up 18% in 2020 over the previous year. But this segment saw accelerated growth in the fourth quarter, with deployments up 59% year-over-year.
While investors should be sure to do their own homework on Tesla stock, Dorsheimer highlights an often underestimated aspect of the business that could be a meaningful contributor to Tesla's bottom line.
While there is always the possibility that the company could run into unexpected difficulties, such a strong first quarter suggests that the company could easily break even this year. The addition of Model Y production at its Shanghai plant and expected contributions from new production lines in Germany and Texas later in 2021 should provide more than enough production capacity for Tesla to beat guidance.
While the price is above 601.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 677.00
- Take Profit 1: 786.00
- Take Profit 2: 839.00
Alternative scenario:
If the level 601.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 601.00
- Take Profit 1: 514.00
- Take Profit 2: 463.00
