Shares of Tesla (NASDAQ:TSLA) are up about 2% in early Tuesday trading after a number of positive reports were released. On one hand, an analyst reiterated an Outperform rating, while another report suggested that the company is close to building a factory in China. The headlines continue to fuel the Tesla hype machine, while an examination of these items reveals the situation is much different than it appears.
Let's start with the analyst note, which came from Ben Kallo at Baird, one of Tesla's biggest supporters. He reiterated his Outperform rating on the stock, talking about Tesla being at the forefront of technology and discussing how the energy storage business continues to be underappreciated. We've heard those arguments before, but what really gets me is that the analyst also kept his $368 price target on the stock, but yet Tesla closed Monday at $369.80 and is currently at $376.00. So the analyst is saying that the stock will outperform, equal to a Buy rating at other firms, but his price target implies shares are going lower.
The second thing to talk about is the newest rumor about a Gigafactory in China, which could be announced as early as this week. By establishing a presence in the country, Tesla can avoid a 25% import duty on vehicles, making them significantly cheaper. While this news sent shares up a percent or two in Monday's after-hours session, the link above also reminds investors that we've been waiting for this news for a while:
Earlier in 2016, Tesla CEO Elon Musk confirmed that the automaker plans on securing a location and a local partner for a manufacturing facility in China by the middle of 2016, but an announcement never came.
Given how Tesla has been late on several items by one year, two years, or more, investors might not be surprised that we haven't heard anything from China yet. Of course, the company still would need to find a local partner, and a factory would be year(s) away from being ready to produce vehicles. Even if Tesla broke ground this week, which seems highly doubtful, you are talking about a 2019 story at the absolute earliest.
When we talk about the hype surrounding Tesla, I often am amazed at how many apologists there are for the company. There's always an excuse if the company fails - blame a supplier, blame the customer, etc. What gets me really mad is when supporters build up hype for a product, then try to take down expectations so things can outperform. In the latest piece about the solar roof, electrek says that installations are expected to start in the third quarter, making it seem like that's in question so we shouldn't be expecting much from Tesla in the near term. Unfortunately, that runs counter to what Tesla says on its own site about the product:
(Source: Tesla solar roof page)
As Tesla shares again break through $375, investors should carefully consider the hype machine. Will Ben Kallo continue to reiterate his Outperform rating on a stock he now expects to decline by $8 a share from current levels? Are we finally going to get China factory news that Elon Musk said was coming a year ago? What will supporters say when solar roof sales are minimal in the near term, just like energy storage products that continue to fall well short of expectations? In situations like this, investors have to be really careful, because performance generally doesn't meet the hype, as Tesla has shown dozens of times in recent years, and that can be very dangerous for stockholders.
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