Forget privatization, the big Tesla news might be its production capacity
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Forget privatization, the big Tesla news might be its production capacity

The media is awash with Tesla stories at present, as an ongoing narrative about the company’s possible privatization plays out over Twitter and the finance pages. Details drip in: Musk is speaking to the Saudi Sovereign Wealth Fund and Goldman Sachs. Some investors are furious at the impact the discussions are having on Tesla’s share price. There is no consensus amongst analysts as to how likely it is the company will go private. However, in the media furor, an ultimately more important point may have gotten lost: Tesla’s production of Model 3s is going great.

A year-to-date of ups-and-downs on the market has seen Tesla’s share price increase by more than 8%

Source: Yahoo Finance

In a note passed around Thursday, Evercore ISI analysts George Galliers and Arndt Ellinghorst talked Tesla up. The pair had just returned from a trip to the company’s Fremont, California, plant earlier this week – and they were impressed with what they saw. They said that CEO Elon Musk’s plan to turn Tesla into a profit-generator was on track, and an 8,000 Model 3 / week production rate was “well within reach”. Why does that matter?

The Model 3 is Tesla’s “mass-market” vehicle, long touted by bulls as a gateway to profitability – provided Mr. Musk can get production on track. In fact, production of this particular model has been a key factor in discussions over the company’s viability for some time. Prior to Tesla’s most recent earnings beat, a good deal of the speculation centered around whether Elon could get the company making 5,000 / week. He did, and now it looks like that was just the start. This is a big – as in, BIG – step towards Tesla turning a profit.

In the note, Galliers and Ellinghorst wrote: “We are incrementally positive on Tesla having just returned from a 48-hour trip to Tesla’s Fremont facility. Tesla seems well on the way to achieving a steady weekly production rate.”

Disclosure

Dominion holds Tesla in its Global Trends Luxury Fund.


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