Shares of Tesla (TSLA) were surprisingly one of the biggest gainers in the fourth quarter, despite the overall market going through a period of volatility. However, that volatility eventually caught up with the automaker's stock, as it's been moving erratically over the past few weeks.
On Monday, shares were up just over 5% to $333 in midday trading after the company officially began construction on its Gigafactory 3 in Shanghai. China's an important market for Tesla because it's the largest electric vehicle market in the world. During a series of tweets, CEO Elon Musk -- as he often has -- shared the company's outlook with his followers.
Looking forward to breaking ground on the @Tesla Shanghai Gigafactory today!— Elon Musk (@elonmusk) January 7, 2019
Musk went on to say that Tesla hopes to finish initial construction this summer and begin limited production of the Model 3 near the end of 2019. High-production volume is expected to begin in 2020. He added further clarification, saying that Gigafactory 3 -- which is planning to produce both cars and batteries -- will produce affordable versions of the Model 3 and the coming Model Y. Musk notes that the premium version of the Model 3, as well as the S and X, will still be produced in the U.S. and shipped globally, China included.
Tesla doubters have railed against the company's Shanghai plans for months now, with arguments ranging from financing to joint venture partnerships to its timeline. However, several of those factors have been addressed.
The automaker has already said it plans to use local debt to finance the factory, while a JV partner is not needed thanks to recent changes in China. The country used to require foreign manufacturers to have at least a 50/50 partner with a local company. This forced companies like Ford (F) and General Motors (GM) to partner with JVs in the past. Because of China's size, though, the move was still worthwhile. Tesla will be the first foreign automaker to fully own its production plant in China.
As for the company's timeline to produce, that's still up for debate. From breaking ground to starting production -- doing so in less than 12 months is pretty tough. But we've seen buildings go up in China faster than many can comprehend and Musk's forecasting abilities, while still susceptible to being too optimistic, have improved as well. Lastly, remember that Tesla built a tent in California to aid in production capacity, so the automaker has proven that it's willing to take on unconventional methods, if necessary.
So where does this leave Tesla?
As is usually the case, Tesla is in a tricky spot. After achieving positive free cash flow and profitability last quarter, the assumption is that it will do so again this quarter. Continuing this trend will be key to the company's long-term existence. However, it has a number of growth plans for the future, with its Shanghai plant and Model Y release the most imminent. So Musk & Co. need to be responsible when it comes to managing its finances.
Tesla will have to keep demand for its products elevated and remain cash flow positive to stay in a good financial state. Opening up the Model 3 for global shipments is a good place to start, too. Tesla plans to ship 3,000 Model 3s per week to Europe starting next month, and begin shipping the Model 3 to China in March.