Tesla Launches Model Y Production in China

Tesla shares could print fresh record highs Tuesday, lifting Elon Musk's clean-energy carmaker to a market value that's equal to that of Ford and General Motors combined.

Tesla Inc.  (TSLA) - Get Report founder and CEO Elon Musk officially launched the clean-energy carmaker's Model Y production at its Shanghai 'gigafactory' Tuesday with a prediction that the SUV will be more popular than its other vehicles in the world's largest car market.

Musk cut the ribbon on Tesla's $2 billion plant -- its first foreign production facility -- earlier Tuesday in a ceremony attended by Shanghai city officials and scores of company employees while noting that the Model Y, which carries a base price of 444,000 Chinese yuan ($63,000), will likely outsell Tesla's other sedans, including the Model 3.

China's car market, however, is suffering one of its sharpest pullbacks in more than three decades as broader economic growth slows amid its ongoing trade dispute with the United States. 

Government subsidies for the sale of electric cars, meanwhile, were cut in half -- to 25,000 yuan -- in June of last year, triggering a plunge in third quarter sales that rattled investors and raised questions over China's ambition to have clean-energy vehicles comprise 70% of its sales by 2025.

Still, Tesla's main China rival, the electric carmaker NIO, posted a 25.4% increase in December sales earlier this week, suggesting the recent firming of China's broader economy could be supporting new car sales heading into 2020.

Tesla shares were marked 2% higher Tuesday to change hands at $460.73 each, an all-time high that would extend the stock's six-month gain to around 98% and value the Palo Alto, California-based carmaker at around $83.1 billion - just shy of the combined $87.1 billion market value of Ford  (F) - Get Report and General Motors  (GM) - Get Report

Musk's suggestion that the Model Y could outpace Model 3 sales could prove crucial for Tesla's mid-term stock performance, which is pricing in annual unit volumes of more than 1 million by 2025, according to analysts at Credit Suisse.

Bulls believe Tesla has a path to 1.4 million units by 2025 with Model 3/Y gross margins in the low/mid 20% range. It also provides context for the uberbulls, showing why they might see upside to a stock price of $1,900 – they likely believe Tesla can reach annual volume of 2 million units (making Tesla one of the top 15 global OEMs by volume)," said Credit Suisse's Dan Levy, who boosted his own price target on Tesla by $140 to $340 per share.

Last week, Tesla topped the lower end of Wall Street forecasts for 2019 deliveries with a full-year tally of 367,500 units, lead by the sale of 92,500 Model 3s over the three months ending in December.