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China Drives Tesla, GM Higher

China President Xi Jinping announced plans to lower tariffs for autos and other products on Tuesday, driving automaker stocks General Motors (GM) and Tesla (TSLA) higher—and taking some of the teeth out of the escalating trade war between China and the U.S.

Investors noticed. Shares of GM are up 2.5%, to around $38, and shares of Tesla have risen more than 5%, to around $304. Meanwhile, the First Trust Nasdaq Global Auto Index fund (CARZ) is up 1.8%.

While automakers are benefiting from the day's news, Tesla still has a long way to go. Last week, shares got a confidence boost. The company reiterated its Model 3 production target and said that it would "not require an equity or debt raise this year, apart from standard credit lines." Company founder and CEO Elon Musk tweeted with some self-deprecating humor last week: "Car biz is hell..."

But Tesla might be too optimistic.

"With only a sustainable production rate of approximately 700 vehicles throughout the quarter—after achieving an extrapolated + 1,000 Model 3's per week ending 4Q17—we believe the sustainable production rate for [the second quarter] is most likely below the 2,000 vehicle mark the company achieved in the final week of the quarter," wrote David Tamberrino, a Goldman Sachs analyst.

Tamberrino has a Sell rating on the stock and a six-month price target of $195, implying a downside of about 35%. He added that Tesla may have to raise capital later this year based on the cash burn of the Model 3 and its target growth projects.

Ford Motor (F) and GM have rosier prospects. The two automakers could benefit from positive earnings revisions as investors flesh out the potential impact of a U.S. infrastructure bill, says Morgan Stanley analyst Adam Jonas. On Monday, Morgan Stanley upgraded GM to Overweight from Equal-Weight and raised its price target by $3 to $48.

When it comes to picking auto stocks, talk—even tariff talk—is cheap. What you really want to see is where the dollar meets the road, and infrastructure spending is what could pave the way for GM and F, which could benefit from higher truck sales. Tesla, of course, doesn't sell trucks.

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