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Should You Include Tesla Stock in Your Portfolio?

This week started well for Tesla’s ( TSLA ) stock. It ended the first trading day at $225.03 after rising by 4.7%. During after hours it was even able to climb higher to $225.50. In June the stock rose by more than 20% in light of signals from the company’s CEO, Elon Musk, which suggested that production and sales were on the rise.

One should bear in mind, though, that the stock was facing tremendous hardships in recent months. Since the beginning of the year, it lost around 30% of its value leading to a massive short sell of more than 40 million shares.

Recent weeks’ price figures may well indicate the beginning of a recovery process after a long period of grim performances. Indeed, some leading analysts believe the bad times are over with positive prospects on the horizon.

Among them is Ben Kallo from Robert W. Baird. He thinks that Tesla is on track to meet volume guidance which will make its shares move higher. He has recently stepped up his price target for the company’s stock to $340 (51.29% upside).

On June 10, Craig Irwin from Roth Capital has followed suit and upgraded TSLA from neutral to buy with a price target of $238 indicating a 5.9% upside (the stock’s current price is $225.03 with average upside of 22.25%). He believes that strong demand from China will significantly assist in reducing battery cost that has weighed heavily on the company’s profitability.

What Can We Expect in the Upcoming Months?

Despite the recent recovery displayed by Tesla’s stock, there are some bad omens which paint the company’s financial future in uncertain colors. Tesla have managed to come up with cheaper models compared to its $90,000- luxury Tesla Roadster sportscar. These models, such as the Model 3 sedan ($37,000) and the about to be launched Model Y crossover SUV ($47,000), appeal to much wider audiences.

However, cheaper cars tend to have lower margin. That becomes significant when you constantly have to invest abundant resources in order to ensure you stay at the forefront of technology. Tesla will have to find a way to lower its manufacturing costs; as it did with its batteries, selling them at 20% lower cost than its competitors.

In addition, demand for Tesla’s cars may shrink in the foreseeable future. The federal tax credit decrease for purchasing a Tesla car that came into force on January 1 has already hurt the company as was demonstrated in its Q1 earnings report. On the first of July the tax credit will decrease once more from $3,750 to just $1,875. This decrease will further reduce demand for the more expensive, and thus more profitable, models.

Lastly, Tesla CEO, Elon Musk, has promised more than once that by 2020 Tesla would be able to launch a fleet of robotic taxis and autonomous cars. In reality, however, the company’s products are still quite far from technological maturity, especially when it comes to the radar and camera systems meant to be installed in every car.

To put things in perspective, the technical aspect has always been the Achilles heel of the autonomous vehicle industry. Tesla’s competitors (i.e. Alphabet's ( GOOGL ) Waymo) are also quite far from building a system that can replace human driving, not to mention mass production of such a system.

What’s the Bottom Line?

In light of its recent recovery and analysts’ positive reviews, at present Tesla’s stock can definitely be considered a good investment channel. However, in the long run, investors should remain vigilant and closely monitor new developments that may cause it to sink into the red zone again.

Indeed, as we can see here, TSLA stock still shows a Hold analyst consensus rating:

See the latest ratings from top-performing analysts here