The launch of the Tesla Model 3 inspired ValueWalk to revisit Elon Musk’s prediction that Tesla would have a greater market capitalization than Apple by 2025.
According to the latest figures available at the time of writing, Tesla Motors Inc (NASDAQ:TSLA) has received over 375,000 pre-orders for the Model 3. That is equivalent to $14.5 billion in potential sales. Now Longboard Asset Management CEO Cole Wilcox and Senior Portfolio Consultant Ross Hendricks have weighed in on the company’s future prospects in a ValueWalk exclusive.
Many famous hedge fund managers engage in philanthropy, often through their own foundations. Leon Cooperman of Omega Advisors founded his foundation with his wife Toby, and he invested the foundation's funds into many hedge funds and other assets. Q3 2021 hedge fund letters, conferences and more Here are Leon Cooperman's favorite hedge funds based on Read More
Tesla Model 3 launch an amazing success
Perhaps the most amazing thing about the amount of orders is that many were placed before the public had even seen the Model 3 sedan. That’s not to mention the number of people that slept on the streets overnight in order to be among the first into Tesla stores around the world, in scenes more usually associated with the launch of the latest Apple gadget.
After the unveiling Wilcox and Hendricks believe that the “excitement isn’t expected to slow anytime soon.” With 375,000 vehicles ordered the Tesla Model 3 eclipses 2015’s biggest selling car, the Toyota Camry, according to Car and Driver.
As we previously pointed out, Musk has always had grand designs for Tesla. The earlier premium models were a way for the company to build its brand on its way to becoming “a leader in mass market, sustainable transportation,” write Wilcox and Hendricks. So far the figures show that Tesla could well be on its way to achieving that goal.
Whether or not the company can do so largely depends on its ability to ramp up production. Previous targets had the company aiming to sell 200,000 cars by mid-2019, but the Model 3 pre-orders blow that out of the water.
A new set of challenges await
So how will the company deal with the fact that the cars it aimed to produce over the course of the next three years were spoken for just 24 hours after the Model 3 unveiling?
“I believe Tesla now has every incentive to ramp up production to full scale as quickly as possible. So does Musk, as he tweeted several times after the reveal that the production timeline has to be examined,” writes Wilcox.
While that certainly seems logical, implementing such a rapid upturn in production will challenge Tesla Motors Inc (NASDAQ:TSLA) to operate on a scale it has never before seen. While some commentators point out that battery production could hold back the number of cars built, Wilcox is bullish on the carmaker’s abilities to meet demand.
“It took Tesla approximately two and a half years to ramp up model S production to its maximum demand level of 50,000 per year. I believe Tesla can replicate this timetable, hitting its 350,000 per year production in less than three years – by the end of 2018 rather than 2020,” writes the Longboard CEO.
Now that Musk has seen just how high demand is for the Model 3, he will have both the incentive and the capital to push production past previous targets. Following the successful launch shares in the company have gone up in price, breaking through their 200-day moving average and moving towards a new all-time high.
Even with positive movement in stock prices, it is not clear how close Tesla Motors Inc (NASDAQ:TSLA) will get to Apple in terms of market capitalization. As Wilcox points out, the electric carmaker has “faced naysayers every step of the way” on its journey so far.
Prior to the launch of the Model S, the carmaker gained a reputation as one of the most shorted stocks among traders. However short sellers suffered as the success of the sedan pushed share prices from $50 to $200 in a few months.
Short sellers bet against Tesla again before the Model 3 launch. As Wilcox says it appears that “all of the same ingredients have come together for another significant short squeeze, leaving us to wonder: could Tesla shares rise to $500?”