It’s no secret to anyone that Tesla’s (TSLA) stock has become disconnected with reality, as shares are up 40% over the past three months. Even CEO Elon Musk has commented on the stock, saying the company’s market cap is “higher than we have any right to deserve.”
While investors have rightfully pondered the company’s past performance, the upcoming Model 3 launch, slated for next month, is the most important event in Tesla’s history. If Tesla gets it right, the bulls will have been vindicated. If it doesn’t, the share price could see a drop of epic proportions.
Despite the company’s best efforts to “anti-sell” the Model 3, pre-order estimates for the car have been nothing short of astounding. It’s well over 400,000 at this point and could be as much as 500,000, which would push anyone pre-ordering the Model 3 now into getting the car perhaps as late as 2019.
All indications are that the Model 3 is on track, with Musk telling shareholders earlier this month that the mass-market electric vehicle is “definitely” on track for production in July. Any setback to the production date could hit shares, as it will affect unit sales in 2017. Tesla and Musk have had a notorious history of promising one thing, only to then fail to deliver it in the timeframe laid out.
Wall Street has slightly raised its estimates for Tesla and 2018 production/delivery targets, but there is still a huge disconnect between Tesla’s target (500,000) and what Wall Street is expecting.
As Model 3 reservations show no signs of slowing down, it’s critical that Tesla have its gigafactory up to speed to keep pumping out lithium-ion batteries for the car. Musk has said the company could have as many as five gigafactories (including the one in Nevada and SolarCity’s plant in Buffalo, N.Y.) to keep up with capacity for lithium-ion needs.
With the first cars coming out next month, initial customer and media reviews will be critical to the long-term viability of the car. It’s like any hit movie — if the reviews are terrible, it may have a big opening weekend, but future weekends are likely to underperform. Whereas with Wonder Woman, audiences are likely to keep filling the box office receipts based on critical and customer reviews.
It’s clear that electric vehicles are the way of the future. Bloomberg New Energy Finance expects as many as 41 million electric vehicles sold by 2040 and seemingly every car maker, from Ford to GM to BMW has an electric vehicle or is working on getting one out to the market in the next couple of years.
But Tesla, which has had an effective five-year head start on everyone, has built brand cache with buyers as it’s flowed from the ultra luxury segment of the market down to the mass-market, where the Model 3 (which starts at $35,000) is expected to have the most impact.
The Roadster put Tesla’s name out there as a viable electric car manufacturer. The Model S proved it combine a beautiful aesthetic with power and performance, putting it ahead of other manufacturers. But the Model 3, which has been dubbed as Tesla’s iPhone moment, is the most important moment in the company’s history. It will show (or not) whether Tesla can firmly deliver on what it has promised investors, the media and consumers.
If it can, the sky is the limit for Tesla. If it can’t, then it will come crashing down like a house of cards.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.