Tesla's Circus of a Conference Call Shakes Confidence in Musk

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(Bloomberg) -- Confident Tesla Inc. investors were hoping for a rally in the shares on Thursday after headline results topped expectations. Then came the “bizarre earnings call.”

While several analysts noted that the first-quarter results did not provide enough meat for either bulls or bears, CEO Elon Musk’s “defensive” stance during the call possibly scared away some investors, evident from the 8 percent drop in the shares. “‘Dry’ though they are, near-term questions regarding cash and Model 3 production will likely determine the near-term trajectory of Tesla shares,” Piper Jaffray analyst Alexander Potter wrote in a note to clients.

Read more: Tesla’s 1Q earnings call transcript

Here’s a round-up of the analyst commentary.

Loup Ventures, Gene Munster

“As VCs that look to invest in defensible companies, we were struck by Elon’s assertion that ‘moats are lame,’ in response to a question about their supercharger network. But his rationale is sound.”

Rapid innovation is the advantage that Apple, Amazon and Tesla have over legacy competitors in phone, retail and automotive businesses. “And herein lies our confidence in Tesla.”

“We continue to stand behind the Tesla story based on our belief that the company is in front of a massive opportunity related to EV, autonomy, and renewable energy. We expect they will profitably scale Model 3 production in the back half of 2018 and successfully launch Model Y thereafter.”

Cowen, Jeffrey Osborne

(Underperform, price target $200)
“While Tesla’s gross margins were better than expected, the ~$1 billion in free cash flow losses is certainly a focus. The company continues to over promise and under deliver.”

“Ramps of a car platform shouldn’t take a year, but that is bound to happen when you skip beta testing. Reliance on over automation is also a concern.”

“The goal of being free cash flow positive and GAAP profitable appears more aspirational than actual guidance. In general, we believe the company’s entire communication strategy with the Street needs to be revisited, especially at a time when debt is maturing, the company is burning cash, and numerous expensive projects are on the drawing board.”

Morgan Stanley, Adam Jonas

(Equal-weight, price target $376)
“We believe Tesla’s CEO made a mistake in refusing to answer some of the analyst questions about the Model 3 ramp. Additionally, we found the posture out of character with the normally inviting, enlightening tone of prior conference calls over many years.”

“More than any other factor, the path of the Model 3 can determine whether the stock could test our $561 bull case or fall below our $175 bear case.”

“An important part of Tesla’s success has been its relationship with the capital markets in funding its ambitious plans. The analysts on the call represent the providers of capital that Tesla has throughout its history depended upon.”

Read more: Musk Says Don’t Buy Volatile Tesla Stock; Investors Listen

Bernstein, Toni Sacconaghi

(Market-perform, price target $265)
“Beneath the bizarre theatrics, however, we see Tesla’s 1Q as in-line with expectations on most metrics, including revenues, gross margins, and free cash flow.”

“On net, the ramp continues to feel like a work in the progress, and we are lowering our Model 3 delivery estimates.”

“We see cash flow usage of ~$1.5 billion to $2 billion over the next 2 quarters, which may necessitate a capital raise.”

Evercore ISI, George Galliers

(In line, price target $287)
“We came away from the quarter learning little and so continue to sit on the side as ‘the circus’ goes by.”

“We believe investors will be happy to see Tesla moderate its Capex outlook, providing some respite for now.”

“We continue to need greater confidence on the Model 3 ramp to a weekly production rate of 5,000 units, and then ultimately 10,000, in a smooth and timely manner. In this regard, we don’t believe yesterday provided much incremental information.”

RBC, Joseph Spak

(Sector perform, price target $280 from $305)
“Investor feedback is that the (conference call) performance shook confidence, which we’d argue is an important piece of the Tesla story. The results themselves probably did little to incrementally persuade bulls/bears either way.”

“Investor feedback to the call was shock that a CEO would be dismissive and the general sentiment was that the defensiveness spoke volumes.”

Jefferies, Philippe Houchois

(Hold, price target $250)
“The earnings call clearly did not provide the ‘credibility reset’ we were hoping for.”

“However, by showing an improved gross auto margin, better capex discipline and confirming more conservative ramp up targets, we think Tesla has bought itself more time to demonstrate improvements in 2Q.”

“If Tesla can get close to sustainable 5,000/week by 2Q end on stable to slightly better auto gross margin, 2H break-even will start to look realistic.”

Baird, Ben Kallo

(Outperform, price target $411)
“Musk declined to answer two sell-side questions on the conference call, which led to some pressure on shares after hours. Importantly, we believe this is a short-term impact, and expect shares will trade higher on the solid 1Q results after the dust settles.”

“Elon indicated he does not want to raise capital in 2H 2018, although we continue to believe a capital raise would remove an overhang on the stock.”

Piper Jaffray, Alexander Potter

(Overweight, price target $369 from $385)
“‘Dry’ though they are, near-term questions regarding cash and Model 3 production will likely determine the near-term trajectory of Tesla shares.”

“Bears will likely not relent until Tesla delivers steady Model 3 production, a stabilized cash balance, and rising margins... and so far, Tesla hasn’t.”

“Musk isn’t dodging questions when he provides vague responses - because it’s really true: nobody can predict quarterly volume accurately when a company is in the process of ramping production exponentially.”

“If ‘big picture’ investors can look beyond the near-term noise, we think they’ll be rewarded - but they should also keep a bottle of Pepto-Bismol handy.”

©2018 Bloomberg L.P.

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