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Tesla Finally Got Some Good News – Should You Buy?

Tesla Finally Got Some Good News – Should You Buy?

Elon Musk is out as Chairman, but October is already looking like a very good month for TSLA anyway.

The news around Tesla (NASDAQ: TSLA) has been a whirlwind lately, but that’s nothing new.

Back in August, the carmaker’s chief, Elon Musk, published an ill-advised tweet claiming that funding was secured to take the company private at $420 per share.

The tweet sent shares soaring. Turned out, there was no such funding and the company later clarified that it would remain a public company.

Then late last week, the SEC sued Musk over the tweet, charging him with securities fraud for the false and misleading tweet. The SEC initially sought to permanently ban Musk from serving as an officer or director of a public company, a result that would have been disastrous for Tesla.

And on Saturday, Musk settled with the SEC, agreeing to step down as Tesla’s chairman for three years and pay a $20 million fine. He will remain as the CEO.

Alongside this mess, Musk had been publicly attacking critics on social media, was sued by one of the rescuers involved in the Thai cave rescue of a trapped children’s soccer team who Musk called a “pedophile,” and was filmed smoking pot during an interview, each shaking investor confidence in the man running the most valuable carmaker in America.

But then today, news broke that the company may have finally taken a step toward its most elusive goal: turning a profit.

The company announced today that it had hit its ambitious production target for its mass-market Model 3 sedan, pushing out more than 53,000 vehicles last quarter. The company also reported making a record 80,000 vehicles total for the quarter.

Wall Street reacted cautiously to the news, and understandably so, considering Musk’s recent track record. But the big message from Tesla’s results is that it might actually be finally living up to Musk’s lofty goal of making money by manufacturing and delivering electric cars at scale.

While Tesla is still up against some big challenges, including the impending wave of new electric models coming from every major carmaker over the next couple of years, the news is still a bright spot for the company.

“We think deliveries are good enough to support strong financial results,” wrote Ben Kallo, an analyst at Robert W. Baird & Co., in a note to clients adding that the company may deliver the net income and positive cash flow it forecast for the quarter. Kallo has a Buy rating on the stock.

Kallo may very well be right. We reported back in July that Tesla could deliver a surprise in its Q3 reporting as the Model 3 is a highly profitable vehicle.

Engineering benchmarking firm Munro & Associates Inc. found that the Model 3 gave Tesla an “over 30%” margin for the base Model 3 as the company is relying on in-house technology to do more of the work in these vehicles, ensuring Tesla is able to keep the costs of third-party components low.

With an estimated 30% margin on 53,000 Model 3 vehicles produced in the last quarter, Tesla could deliver some impressive numbers when it reports its Q3 results late this month or early next which could send the stock soaring. 

And with shares trading at around $300, now may be a great time to buy before the stock makes a meaningful move higher.

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