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Why record delivery numbers didn’t help Tesla’s share price

Tesla’s share price skidded last week even though it delivered a record number of cars.

This article was originally published on Opto – Understand What Really Moves Markets.

Tesla [TSLA] delivered 139,300 cars in the third quarter, beating its own record of 112,000 deliveries. That number also topped the 137,000 Wall Street had been expecting, making it the third straight quarter of better-than-expected delivery numbers. Tesla said it now expects to deliver 500,000 vehicles in 2020. That’s a tall order as it would require a blowout 181,650 deliveries in the fourth quarter. If achievable though, the meeting of that ambitious target would certainly rouse those considering a Tesla share price investment.

However, the record-breaking delivery numbers, and promise of more to come, wasn’t enough to stop Tesla’s share price slumping over 3% as part of a broader market selloff, triggered by President Trump testing positive for coronavirus last week.

Why Tesla’s share price dropped in September

Since reaching an all-time high of 502.49 on 1 September, Tesla’s share price has fallen over 16%. Early September saw the stock passed over for inclusion on the S&P 500, despite the company meeting the hardest barrier to entry – delivering a consistent profit. Speculation that it was to join the index had driven gains over the late summer.

Even the company’s hotly-anticipated Battery Day failed to stoke investor interest at the end of March. Expectations had been for news of the ‘million-mile battery’, which would last beyond the life of the car it came with. Instead, Tesla CEO and founder, Elon Musk, focused on cutting battery costs in half, with the promise of a “$25,000 electric car” in three years.

“I think in order for us to get up to … a $25,000 car, that’s something we can do. But if we work really hard I think maybe we can do that in about three years,” said Musk at the event.

“I think in order for us to get up to … a $25,000 car, that’s something we can do. But if we work really hard I think maybe we can do that in about three years” – Tesla CEO and founder, Elon Musk

Musk, as The Verge points out, made a similar promise in 2018 so investors shouldn’t hold their breath.

During Battery Day, Tesla said it will focus on taking control of all parts of the manufacturing process, including mining its own lithium at a 10,000-acre deposit in Nevada. Although not everyone is convinced this is a good idea.

“I personally think that it’s a terrible idea,” Chris Berry, an analyst specialising in energy metals supply chains, including lithium, told The Verge. “I don’t care what Tesla is, a car company or a technology company. I know that’s a big debate. It’s a terrible idea for a company like Tesla, or VW or BMW or whoever, to get into mining because it’s a radically different business.”

Despite the hype in the run-up to the event investors were left underwhelmed, with Tesla’s share price dropping 8% the next day.

“I don’t care what Tesla is, a car company or a technology company. I know that’s a big debate. It’s a terrible idea for a company like Tesla, or VW or BMW or whoever, to get into mining because it’s a radically different business” – Chris Berry

Where next?

Whether the reaction to the delivery numbers shows investor interest is waning in Tesla, is up for debate. The likelihood is that the stock got caught in the wider sell-off, and investors will have to weigh up whether Tesla’s share price is overextended or not.

“As the street digests this eye-popping [deliveries] number, [Tesla’s share price] should head higher over the coming days and weeks,” said Dan Ives of Wedbush Securities, describing the drop as a ‘knee-jerk’ reaction in a note to investors.

“As the street digests this eye-popping [deliveries] number, [Tesla’s share price] should head higher over the coming days and weeks” – Dan Ives of Wedbush Securities

One optimist is Deutsche Bank analyst Emmanuel Rosner who released a note Friday saying now could be the time to buy Tesla. Citing the strong third-quarter delivery numbers, the analyst increased his price target on the stock from $400 to $500.

JP Morgan’s Ryan Brinkman, a long-time bear on Tesla, also upped his share price target on Tesla, going from $65 to $75, although that target does represent significant downside on the current level. JP Morgan also raised its delivery target to 482,000 for 2020, up from 467,000. While this is on the lower end of Wall Street’s expectations, it represents a slightly less bearish outlook on Tesla.

Generally, Wall Street seems cautious over Tesla’s share price. Among the analysts tracking the stock on Yahoo Finance, Tesla carries a $317.18 average price target, which would see a steep 23% downside on the current price. Of the 23 analysts offering recommendations, overall sentiment seems to be Hold.

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