Analyst Arshiya Jahanpour is Not Ready to Bet Against Tesla

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The year 2020 was a milestone for Tesla Automotive.

It was the first time the groundbreaking electric car brand posted a full year of profitability since it was founded by Elon Musk in 2003.

Getting to that point has been among the most storied of journeys in automotive history. Tesla has had more than its share of ups and downs. Indeed, it came within just days of declaring bankruptcy not once but twice over the past two decades.

2008 was a particularly difficult time in financial terms. Tesla was saved by the skin of its teeth after leveraging a successful IPO in 2010. Going public wasn’t the end of its deep financial crisis, but it proved to be the impetus Musk needed to move forward.

When business analyst Arshiya Jahanpour looks at Tesla today, he said it’s difficult not to like what she sees. Consider the recent positive happenings for Tesla:

• Over the past 12 months, shares of Tesla have gained a robust 700%.

• In the past month alone, Tesla stock has gained 50% in value.

• Hertz just announced a landmark deal to purchase 100,000 vehicles from Tesla as the rental car giant is determined to build an electric-car fleet.

• The third quarter of 2021 was the company’s best-ever, posting record profits.

• In October, Tesla’s market cap reached a remarkable $1 trillion for the first time, making Elon Musk possible the richest man in the world.

That also makes Tesla the largest automaker in the world by value. It’s bigger than Toyota Motors, General Motors, Honda Motor Co. and Ford Motor Company.

Even so, Jahanpour urges a measure of caution when it comes to Tesla, an enterprise that has displayed a penchant for embroiling itself in controversy. Musk is famous for making risky moves that have triggered hiccups in more than a few investor pacemakers.

Jahanpour acknowledges the opinions of her peers who maintain that Tesla is an overvalued stock and that the company has been cavalier about being “detached from the fundamentals.”

Another looming challenge for Tesla is that it will continue to face ever-increasing competition as the entire world scrambles to adopt electric vehicles while scrapping traditional models that rely on fossil fuels.

Jahanpour said the global impetus to switch over to electric vehicles entirely by the year 2050 is a double-edged sword for Tesla. On the one hand, the market for electric vehicles is going to remain among the hottest of any sector. But with huge demand comes numerous players eager to jump in and claim their share of the market.

Certainly, Tesla is in an enviable position as an early adopter and a company universally viewed as the prime innovator in electric car technology. But its competitors are not unknown entities – the likes of General Motors, the Ford Motor Company, Mercedes-Benz, Toyota and the other major automotive behemoths have powerful development and production infrastructures that are being brought to bear.

In fact, industry observers are watching Ford. It is investing heavily in electric vehicles. Ford CEO Jim Farley is said to be “both eager and ready to bury Tesla” well-placed insiders have reported.

But Arshiya Jahanpour offers these positive signs for Tesla:

1. Record production, deliveries

Tesla’s latest earnings report showed that it produced 179,757 vehicles which was a 71% increase over the same quarter of the previous year. The delivery number was 180,677, a 61% increase year-over-year.

2. New Manufacturing Capacity Ramping Up Fast

Tesla’s Freemont, California, facility continues to upgrade and expand. It can now produce more of the more expensive Model S and Model X in addition to the Model 3 and Model Y lines. The Gigafactory in Shanghai will be expanded to handle larger production capacity over the next year.

Furthermore, two new factories are being built rapidly in Austin, Texas, and Berlin, Germany. The Texas facility will manufacture the Tesla Semi and Tesla Cybertruck.

The Gigafactory Shanghai currently produces the Model 3, while Model Y production began in late 2020 and will grow over the coming year. The latter two models will be released in 2021 and 2022.

3. Free Cash Flow

Free cash flow reached $2.79 billion in 2020. That’s double what Tesla hauled in during the previous year. Free cash flow is a highly significant indicator of company strength going forward, Jahanpour said.

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