TSLA Stock: Will Tesla’s Aggressive Expansion Pay-off?

For fiscal year 2015, Tesla Motors Inc (NASDAQ:TSLA) used $1.6 billion in capital expenditures, a figure seen by investors as an aggressive move which drove the expectations for the company and made the stock’s price-per-share reach an all-time high at about $280 per share last July, 2015.

However, expectations for the electric-car manufacturer seemed a little gloomy at the start of 2016 as the stock plunged more than 46% to about $150 per share on February. The nosedive might have been driven by Tesla’s seemingly endless spending. In fact, the company’s management had forecast a lower capital expenditure for 2016, however this plan went down the drain when Tesla received a surprisingly high demand for its Model 3. This surge in demand pushed the company to focus toward increasing their vehicle build rate of 500,000 vehicles per year from FY 2020 to FY 2018.

Tesla’s aim to increase its level of production will inevitably cause them to dig deeper in their pockets. As a result, the company is expected to spend much more money for this year’s capex, a figure that amounts to more than 50% higher than the previous expected spending of $1.5 billion for 2016. Naturally, with this much red Tesla’s ability to be net cash flow positive for the current fiscal year is expected to be impacted. Tesla however, believes that with the ramp-up of demand for Model 3 having a long-term goal to meet the needs of their clients will serve them best.

Tesla’s spending for the first half of the year amounted to $512 million; a significantly lower amount than the $831 million capital expenditures from the previous six-month period for 2015. That said however, this doesn’t mean that this year’s expenses will be lower than 2015. According to Motley Fool’s Daniel Sparks, notes Tesla’s management is expected to invest $2.25 billion in capex during the second half of this year, an increase of roughly 340% when compared with the first half of 2016.

These figures show how much trust the electric car maker is placing on the success of its forthcoming Model 3 vehicle, the firm’s most affordable car yet.

Other than the goal of ramping up their production, Tesla is also finishing up the deal to acquire SolarCity Corp (NASDAQ:SCTY), a prominent solar-panel manufacturer. The two companies have already agreed on the merger and the deal is expected to be sealed by the fourth quarter of 2016. That being said, it is to be noted, that Elon Musk’s purchase of $65 million of SCTY seems a bit unusual. The move most certainly will not send a good signal to investors and that in turn will affect TSLA stock.

Charles Elson, an authority on corporate governance at the University of Delaware, said in an interview with CNBC that “When you see an officer buying stock, it is a good sign — it means the business might have a good future. If you see them buying debt, you wonder, what is the long-term value.”

Stock Action

Tesla shares have declined 3.30% in the last 4 weeks and 1.85% in the past three months. Over the past 5 trading sessions the stock has lost 1.14%. The Palo Alto, California-based company, valued at $32.6 billion, has a median Street price target of $240.00. Currently there are 5 analysts that rate TSLA a ‘Buy’, 8 rate it a ‘Hold’. Four analysts rate it a ‘Sell’.

Tesla Motors Inc. is down 1.73% year-over-year, compared with a 11.95% gain in the S&P 500.

• Become A Funded Futures Trader