Tesla ramping up for Model Y, but the company must overcome the rule that could return Tesla stock to the future

Tesla Motors reported record quarterly production and sales on Thursday, netting $700 million in revenue — double what it brought in the year-ago quarter. More than a quarter million cars have been produced since…

Tesla ramping up for Model Y, but the company must overcome the rule that could return Tesla stock to the future

Tesla Motors reported record quarterly production and sales on Thursday, netting $700 million in revenue — double what it brought in the year-ago quarter. More than a quarter million cars have been produced since it began production in 2010, including 6,420 of its latest Model 3, which made its first deliveries on Friday. In addition, it continues to slowly pump out the i3, Model S and Model X, all built off its revolutionary Model S platform.

The latest figures show that the company is trending steadily toward profitability, with profits expected to double within a few years. The company also sees its pipeline full with plans to roll out a second crossover model — aptly named the Model Y — and the Model Y will act as a break from the sedan models that have powered Tesla’s growth in the past. But at a future-proofing price of $35,000, the car should be competitive with its Chevrolet Equinox, Honda HR-V and Nissan Rogue sibling, many said.

Driving the growth at Tesla is its growing presence in China, where its cars generated the bulk of its sales in the second quarter. That growth, however, may be tempered with news that its shareholders could soon be restricted from making certain stock options. As noted by Quartz earlier this month, Tesla is subject to the impact of what’s called a recapture rule — a securities regulation that was enacted after the financial crisis and has resulted in a bevy of unpredictable stocks becoming trading vehicles through tweaks in how and when companies report financial results.

At stake: If a company’s stock price has risen significantly over the previous six months, shareholders are supposed to be forced to sell as well, disqualifying the stock from being used as a securities vehicle. Goldman Sachs analysts think that one such regulation could be applied in June 2020, prohibiting investors from buying shares in Tesla, in the company’s case until 2023. The analyst noted that although a postponement of this rule could spell good news for Tesla, investors may instead focus on the nature of those losses. Tesla, after all, has a fiercely loyal and long-term customer base — investors want their exposure to ensure that, post-sequester, the company is actually earning as much as it says it is, not just on paper.

“In our view, any post-recovery plan by Tesla must deliver the strongest and safest products, which, thus far, we do not view as likely,” the Goldman analysts said. “The longer-term good news is that a great company does not need to produce a large amount of cars every year.”

At least for now, Tesla’s greatest source of cheer is a growing number of Model 3 and Model S customers, who have made their deposits — and hundreds of thousands of them — on an automobile that carries a starting price of $35,000. Despite recently raising the base price of its Model 3 to $44,000, Tesla is continuing to significantly lag its expectations on how quickly it will hit its target of delivering 5,000 Model 3 cars per week within the fourth quarter of this year, in particular. The company only needs to build 18,000 Model 3s to hit that goal, a company spokesperson said.

Despite the frequently stated promise that Tesla would sell 2,500 to 3,000 Model 3s in each of the last two quarters, the company has only sold only about 560 cars per quarter over the last three months.

“Because most car-makers settle for a very small base of fundamental success,” wrote Goldman Sachs analyst George Galliers, “Tesla will likely need to deliver only over 6,000 Model 3s each quarter to make its Model 3 target. That may also be hard to achieve if this week’s spate of California shootings results in a sharp tightening of the gun control conversation — quite possibly inhibiting sales of any existing cars, and potentially those coming in the future.”

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