When life gives you citrons (lemons) make lemonade, so goes the French saying. Despite the recent Elon Musk scandals and the voracity of the bears on the stock, analysts at Citron Research have decided to adopt a long position on TSLA. Their positive turnaround comes right before today’s Tesla earnings report for Q3.
In the past week investors could hardly ignore the mixed news in connection with Tesla Inc. On the one hand the automaker has concluded the purchase of land for its planned and soley-owned factory in Shanghai and Elon Musk disclosed his plan to buy 20 milion USD worth of Tesla shares. On the other hand, the introduction of the heralded lower-priced Model 3 has raised some concerns about the company’s profit margins and the warning by Fahmi Quadir from Safkhet Capital LP about possible disruptions in the supply chain only added to investor’s worries.
With the beginning of the new week the negative sentiment on Tesla has subsided. TSLA shares gained yesterday 12.72 % and were the second best-performing stock on Nasdaq. The reason was primarily the surprising report by long-term short-seller Andrew Left from Citron Research who just before today’s 3Q earnings (after the bell) reversed its investment recommendation. „While the media has been focused on Elon Musk’s eccentric, outlandish and at times offensive behavior, it has failed to notice the legitimate disruption of the auto industry that is currently being DOMINATED by Tesla,“ wrote the analyst in his 9 pages long report and adds that: “plain and simple — Tesla is destroying the competition.”
Even though analysts polled by FactSet expect Tesla to report adjusted loss of $0,03 USD a share for Q3 on revenues of $6.01 billion, Citron Research counters that Tesla stands on the brink of long-term profitability and independence from the capital markets. According to Citron, solid earnings should be supported by the rising demand for cars made by Tesla which is currently pulling customers from Mercedes, BMW, Honda or Toyota. Moreover, in coming months and years TSLA shares could gain thanks to various factors, ranging from its addition to S&P to the construction of a new Tesla factory in Europe and even the introduction of Model 3 to the European market.
Maybe the most important news presented by Citron is the assurance that in the foreseeable future Tesla won’t be facing any meaningful competition: „There is NO Tesla killer. Competition is nowhere to be found and no electric vehicle is slated to launch at the Model 3 price point until 2021.“ And finally, even the moving up of its earnings release for Q3 could bode well for Tesla and its investors: „The last time TSLA reported Q3 earnings in October was in 2016 – when revenue beat the consensus by 21%.“
Photo source: The Verge