Tesla Bulls-Bears United by Low Estimates for Model 3 Production
The two warring factions of Tesla analysts seem to have found a common ground: low production estimates.
(Bloomberg) -- The two warring factions of Tesla analysts seem to have found a common ground, with both bulls and bears expecting the electric-car maker’s first-quarter delivery numbers to be disappointing as it grapples with production bottlenecks at its battery factory and assembly plant. Tesla is expected to announce the numbers early this week.
March was the worst month for Tesla shares since December 2010, as mounting concern about Model 3 production and the fatal crash of a Model X car late last month damaged investor sentiment. The string of bad news has continued unabated, with Tesla late last week announcing a recall of all Model S cars built before April 2016.
While the recall was broadly seen by analysts as a “non-issue,” the crash is expected to attract greater regulatory oversight, especially in light of Uber Technologies Inc.’s recent accident. “The court of public opinion is proving to be a tough one for Tesla at the moment as the automatic emergency braking not stopping the car remains an issue,” KeyBanc analyst Brad Erickson wrote in a note clients.
Here’s a roundup of what analysts’ are saying ahead of the key delivery figures and their thoughts on the several other challenges that are facing Tesla. The stock is down as much as 7 percent intraday, touching the lowest since mid-March 2017.
Goldman Sachs, David Tamberrino
(Sell, price target $205)
“While monthly Model 3 deliveries are showing sequential improvement, we estimate that they will fall well short of consensus expectations.”
Says VIN registration data implies a production rate of about 1,000/week being achieved at times in the first quarter, but “extrapolating to deliveries we see only 7,000 Model 3s reaching customers in the quarter.”
Sets Model S estimate to 11,000 and Model X to 11,000, for a combined 22,000, down from
24,000 previously.
“Bulls are looking for the company to provide guidance that it can achieve 2,500/week based on run-rate from the few test days that likely occur at the end of the quarter.”
Barclays, Brian Johnson
(Underweight, price target $210)
“The bar for the first-quarter Model 3 production exit rate has been reduced into the print, we suspect likely now 1,500-1,700 units/week, well below the 2,500 communicated back in January.”
“It’s possible Tesla may have stockpiled batteries amid Fremont downtime, allowing production to be higher in the final week of first quarter.”
Estimates first-quarter Model 3 deliveries of 12,500, Model S/X deliveries of 25,000.
Cowen, Jeffrey Osborne
(Underperform, price target $200)
“We see the slow ramp and cash burn putting pressure on the stock given the debt due and EV competition coming this year and next.”
NOTE: March 28, Tesla Bonds, Down to 86 Cents, Start to Flash Warning Signals
Expects first-quarter Model 3 deliveries reaching 7,500 and Model S/X deliveries of 22,500.
Morgan Stanley, Adam Jonas
(Equal-weight, price target $379)
“The precise timing of when Tesla can achieve a 2,500/week and then a 5,000/week production run-rate for its mass market sedan can make the difference between whether Tesla is potentially raising capital from a position of weakness at a price near our $175 bear case or whether it can access capital from a position of strength with a stock price near our $561 bull case.”
Continues to expect Model 3 production bottlenecks will be mitigated, but does not see a 5,000/week run-rate before deep into the final quarter of 2018. “Our discussions with investors suggest expectations for the Model 3 ramp that are clearly below the company’s guidance, somewhat de-risking the event path of an official announcement of a further delay.”
Citi, Itay Michaeli
(Neutral, price target $347)
If Model 3 struggles to convert orders at the current price of about $49,000 or targeted price of low/mid $40,000, it would likely put more pressure on Tesla to successfully deliver its next major Autopilot update to further differentiate the Model 3 and drive up margins, accelerate a Model 3 leasing option, introduce lower-priced variants and shore up its balance sheet given potential free cash flow implications.
“Unless we start seeing a pattern of consecutive Tesla recalls, we don’t think there will be much of an impact to Tesla’s sales/shares from this one, based on history.”
Deutsche Bank, Rod Lache
(Hold, price target $365)
Data points available to Deutsche Bank suggest another miss; says first-quarter production of Model 3 appear to have averaged about 800/week and Model 3 is only now approaching 1,100/week, compared with guidance of 2,500/week by the end of the quarter.
“Tesla has not been averse to defying industry convention and taking on significant risks. But they are also clearly struggling, with remarkably low output and disappointing quality.”
“The burden of proof has shifted against Tesla.”
Jefferies, Philippe Houchois
(Hold from underperform, price target $250)
Considers a “small possibility of Tesla releasing supportive data this week but mainly high probability that management and the Board will take more drastic action on guidance and funding to restore credibility.”
Most critical will be Model 3 cancellations vs new orders, since the car has now been visible in showrooms for a few months.
Bernstein, Max Warburton & Toni Sacconaghi
Believes Tesla has been “too ambitious with automation on the Model 3 line.” The company has not only automated stamping, paint and welding, it has also tried to automate final assembly, and talks of “two-level final lines with robots automating parts sequencing. This is where Tesla seems to be facing problems.”
Tesla might ultimately need to fundamentally rethink its vehicle assembly plant in Fremont, California, the analysts wrote. “We see a possibility that Tesla may need to redesign final assembly and reduce automation. This may require the product itself to be redesigned as well.”
Oppenheimer, Colin Rusch
(Perform)
“We continue to believe that pressure on Tesla’s debt could be amplified in its equity pricing, especially given concerns around delays in reaching profitability.”
Increased scrutiny of advanced driver-assistance systems (ADAS) by regulators along with the NTSB investigation could “bring to light any technical issues in Tesla’s system as well as question its implied technical leadership.”
KeyBanc, Brad Erickson
(Sector weight)
Talked to 17 sales centers across the U.S. and the bottom line is Model 3 deliveries are showing an improving ramp vs prior checks, but still likely tracking below 2,500/week. Expects the company to report Model 3 deliveries in-line to just below 8,500.
While the latest recall is Tesla’s “largest in terms of unit volumes, we estimate the all-in cost in the range of $5 million-$8 million -- a rounding error relative to its total warranty expense -- and thus a non-issue for the stock.”
Nomura Instinet, Romit Shah
(Buy, price target $420)
Expects Model 3 results to miss production guidance, but that Tesla will show meaningful progress in ramping deliveries and peak production in first quarter. “In the third
quarter since the Model 3 launch, we believe Tesla is approaching a sustained run-rate of
1,000 vehicles per week.”
Now forecasting a sustained production run rate approaching 4,000 per week by the end of third quarter.
Remains constructive on Tesla, saying that “much of the recent weakness is based on concerns (accounting, insolvency risk, and passenger safety) that are largely without merit.”
Sees “significant momentum for alternative energy vehicles, an inferior competitive landscape and continued progress on Model 3 production driving more than 70 percent top-line growth this year, easily one of the fastest ever by a multi-billion dollar company.”
Baird, Ben Kallo
(Outperform, price target $411)
“While Tesla may not reach an exit production rate of 2,500 Model 3s/week, we expect the company will within weeks.”
“For first quarter, we estimate Tesla will have 10,000 Model S deliveries, 10,000 Model X deliveries, and 8,000 Model 3 deliveries.”
Production delays are priced into the stock.
Consumer Edge, James Albertine
(Overweight, price target $385)
“Our sense is investors are looking for Model 3 production somewhere in the 1,750 units/week range, which while below 2,500 units per week guidance, many would view as a positive given progress from 4Q17.”
To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net.
To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Scott Schnipper
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