The US Dollar has seen a solid uptrend that began in mid-August 2014, when dollar futures were trading around $82. Since then we have seen a big appreciation to its current price of $94.84, as of this writing. We have seen the impact of the strong dollar throughout the fourth quarter earnings season. Management from a wide variety of corporations that rely on international sales have warned that currency prices have affected revenue and could continue to affect revenue guidance for most of 2015. While this is certainly a sting for underlying S&P 500 earnings, Tesla Motors is one of few companies that will actually see benefits from a strong US Dollar.
Global Equities analyst raises Tesla price target
Trip Chowdhry, an analyst with Global Equities, released bullish comments on Tesla this morning, saying that the company will continue to get a lift from a strong US Dollar. The analyst kept his rating of Tesla at “overweight”, but raised his price target to $385. As of this writing, Tesla currently trades at $211.38, up 3.82% on the day.
Chowdhry backs his bullish statements by saying that 70% of Tesla’s car part supplies reside internationally, with 30% of suppliers residing in the US. This is significant because a rising dollar compared to other currencies makes 70% of its supplied parts cheaper, thereby increasing profits from each car sold. Furthermore, while Tesla’s sales are split, 50% from domestic and 50% from international customers, international customers are more “performance sensitive versus cost sensitive”. This means that “the exchange impact pass through to price is easier”. This means, essentially, that international customers are more willing to pay for a pricier car if it has impressive specifications such as its 0-60 mph speed, torque, horsepower, etc. Chowdhry goes on to say that “the net impact of stronger dollar on Tesla’s business probably makes TSLA one of the best technology stock to own in the strong dollar environment.”
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Overall, Tesla analysts remain bullish, despite falling oil
One of the most talked about issues in the market over the past several months has been oil’s fall from grace. Despite a rally past couple of trading sessions, oil found resistance at $50 a barrel and has given back some of its gain today to land at its current price of $48.42. This is still a far cry from being at $100 a barrel back at the end of July 2014, when the downtrend officially began. Lower oil prices translate to lower gasoline prices, which has been cheered by consumers, but has ravaged the energy sector.
The fall in oil has certainly hurt renewable energy companies as well, and certainly we have seen some analysts show concern that sales may be impacted due to cheaper options available at the moment. Currently, nine analysts rate Tesla a “hold” and three rate the stock a “sell”. However, both are dwarfed by the nineteen analysts that rate the stock a “buy”, believing that low oil will have little to no impact on the company.
The bottom line here is that Tesla may or may not see sales affected by lower oil, but it certainly is seeing its profits per car getting a boost from a strong dollar. Being that a significant majority of its car component suppliers are overseas, Tesla will likely better weather the potential sales impact, as parts become cheaper to acquire.