Tesla Stock Predictions: Faraday Future Is Not A Threat To Tesla

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Tesla Stock Predictions

  • Tesla is still the only successful commercial electric vehicle-only vendor.
  • Faraday Future, the secretive electric car start-up, was previously rumored to be backed by Apple.
  • However, it is now clear that Faraday Future is being financed by Chinese online video company LeTV.
  • A Chinese-made car will remain a second-best option against the global brand power of Tesla.
  • Tesla will sell the  entry-level $35,000 Model 3 EV by 2017.
  • I Know First algorithm is currently bullish on Tesla.

After hitting above $267 last July 20, Tesla’ (TSLA) stock closed below $208 last Friday, November 13. The overall negative mood over TSLA these past few months could also perhaps be attributed to the secretive electric car vehicle start-up, Faraday Future. It doesn’t also help that Faraday Future’s four top team leaders are all former Tesla Motors employees.

On a YTD basis, TSLA is down -15.22%. I expect this stock to drop further due to the temporary market repercussion of the recent terrorist attack in Paris.

The article was written by Alcaraz Research – Senior Analyst at I Know First

(Source: Google Finance)

The lingering rumor that iPhone maker Apple (AAPL) is behind Faraday Future greatly definitely contributes to the bearish outlook for Tesla. The alleged plan of Faraday Future to invest $1 billion to build a factory in America, plus the rumor of Apple’s involvement, are a potent reasons to worry about Tesla’s future. Apple has more than $200 billion in cash reserves and Project Titan is its alleged attempt to create a luxury electric car.

On the other hand, an investigation of TechCrunch revealed that it is not Apple that’s financing Faraday Future. This future rival of Tesla is being financed by Chinese firm, LeTV. The possibility that Apple and LeTV will cooperate on an electric vehicle project is nil. Billionaire Jia Yueting, chairman and founder of LeTV, previously compared Apple to Hitler last March.

Yueting castigated Apple as arrogant and tyrannical. Such fighting words from a Chinese online video-focused company is favorable to Tesla. It is unlikely that Tim Cook will forgive Yueting and get involved in Faraday Future. I now look forward to bulls again rallying behind TSLA once they realize that a Chinese-backed electric car will forever remain a second-best option against the trusted brand power of an American-made car like Tesla.

Chinese Cars Are Unlikely To Succeed In America

The future impact of Faraday Future releasing a commercial electric vehicle is negligible because I believe a Chinese-made car will not win customers in North America or Europe. Even though Faraday Future has employed former Tesla employees, it doesn’t remove the stigma associated with Chinese car manufacturing. Stringent Western vehicle inspection and safety regulations prevents regular Chinese car makers from exporting their vehicles to the U.S. and Europe.

Even on the domestic front, Chinese car buyers prefer foreign brands and ignoring the hefty import taxes. This is likely because the local customers also distrust the quality/safety of domestic car brands. This market reality is also applicable to electric car manufacturing.

The expose that Faraday Future is a Chinese company now just made its future electric vehicle a lot less attractive. Electric or not, new car designs will always take years to develop, test, and pass the automobile inspectors of Western countries. In this regard, I am dismissing Faraday Future’s promise of releasing a commercial EV by 2017. Even if Faraday finishes its $1 billion factory by end of 2016, it will only be able to manufacture model units for testing purposes.

A Chinese firm making its first electric car will also likely incur more attention from U.S. automobile inspectors. Having former Tesla employees on its payroll doesn’t really give Faraday Future a cakewalk process toward becoming a rival of Tesla. Even if a Faraday Future electric vehicle passes government tests, I still feel that American/European car buyers will remain more confident in buying a Tesla-brand EV over a Chinese-backed alternative.

Tesla’s Model 3 Will Get Commercial Release by 2017

The only likely advantage of a Chinese-made EV is that it would be cheaper than Model S or Model X. As a Chinese firm, I expect Faraday Future to focus on affordable entry-level electric cars. However, as per the promise of Elon Musk, the $35,000 Model 3 will be on retail by 2017.

There are now more engineers working fast on realizing the Model 3. It’s a smaller sedan version of the Model S but it has entirely new design that’s using no parts from Model S or Model X. The Model 3 is why I have a long-term bullish outlook for TSLA. As soon as the Gigafactory in Nevada gets operational, Tesla could really deliver a production rate with economy of scale advantage. A $35,000 Tesla electric vehicle increases Tesla’s total addressable market. As of now, the $70,000 Model S is a luxury car that few people could afford.

It is my firm conviction that Tesla’s future as a car vendor lies in mass market cars like the Model 3. The $35k price of the Tesla Model 3 makes it very competitive against the BMW i3, Nissan Leaf, and Chevy Volt. Tesla’s goal is to sell 500,000/year electric cars by 2020. I am convinced only cheaper EVs will help it achieve this sales target.

Furthermore, the recent confirmation from Musk that Tesla will also manufacture the Model 3 in China, means Faraday Future/LeTV now faces a tough rival in the domestic front. The future scenario that Tesla could build and sell locally-made (thus free of import taxes) $35,000 electric vehicle could make Musk’s company dominate the green car industry in China.

I again firmly believe that middle-income Chinese car buyers would still prefer Tesla over Faraday Future. The long-tested safety and performance ratings of Tesla-made electric cars are the reasons why they are still the top-selling EVs. As per the chart below, in spite of the more expensive $70k Model S, Tesla sales were still higher than what Nissan Leaf and Chevy Volt achieved this year.

tesla stock predictions

(Source: InsideEVs.com)

Two or three years from now, I expect Tesla becoming a real mass-market car vendor that could help it become really profitable. The economy of scale advantage in building $35,000 EVs for a greater base of willing buyers is a scenario that’s worth betting on.

My Takeaway and I Know First Algorithmic Forecast

It might be good to add TSLA to your portfolio if you are brave enough to bear the wild swings of this momo ticker. The stock trades a big discount from its 52-week high. I expect this stock to go higher once Musk unveil the Model 3 test unit by March of 2016.

As of November 11, Tesla’s stock also has excellent long-term algorithmic forecast from I Know First. The bright green one-year forecast score of 68.72 is a strong clue that market trend probability is favorable that TSLA’s stock price will be higher after one year period. The 0.36 score is also saying that I Know First’s one year prediction has a higher-than-normal chance to prove true.

tesla stock predictions

 

Seven other professional analysts are calling for a Buy for TSLA. Based on the charts below from TipRanks, Wall Street Analysts have an average 12-month price target of $301.31 for TSLA. It is also important to take into account that hedge fund managers are still very confident over Tesla’s future.

tesla stock predictions

(Source: TipRanks)