Tesla's Strong Deliveries Were Expected, Morgan Stanley Says

(Bloomberg) -- Tesla Inc. shares dropped as much as 3.7 percent on Tuesday after the company reported third-quarter delivery and production figures that analysts described as solid, yet firmly within expectations.

“Even bears expected an unusually strong third-quarter delivery result given extraordinary measures to produce, sell and deliver units," Morgan Stanley analyst Adam Jonas said. Tesla shares closed down 3.1 percent, after gaining more than 17 percent Monday after Elon Musk reached a settlement with the SEC that removes him as chairman but permits him to stay on as the CEO.

Tesla earlier on Tuesday reported deliveries of 83,500 vehicles, including 55,840 Model 3 sedans. The automaker produced 53,239 Model 3s during the period. Jonas noted the Model 3 mix “skewed extremely high-end with production of dual motor exceeding single motor and nearly 100 percent of production dual motor over last few weeks.”

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RBC analyst Joseph Spak said gross margins for the quarter could be solid, as Tesla said deliveries were limited to higher-priced variants. “Bears may interpret this commentary that Tesla has gone through higher-end U.S. Model 3 demand,” Spak added.

Here’s a roundup of the analyst comments.

Bernstein, Toni Sacconaghi

(Market-perform, price target $325)
“Notably absent from Tesla’s press release was any specific commentary on future Model 3 production levels, demand/reservation trends, or availability of lower-priced configurations.”

“While Tesla still managed to deliver ~3000 more cars than it produced, this was only achieved via a sharp curtailing of production in the last few weeks of the quarter, as well as one-off promotions. We can’t help but wonder whether Tesla has underinvested in delivery infrastructure.”

“We continue to see a plausible path to Tesla achieving positive net income and free cash flow in third quarter. Net income will be bolstered by very robust Model 3 average selling prices this quarter (perhaps >$60,000), and free cash flow will likely be helped by an apparent reduction in finished goods inventory.”

Morgan Stanley, Adam Jonas

(Equal-weight, price target $291)

“Expectations for a strong third-quarter are mostly in the market.”

“Direction of the stock from here will come down to reported cash flow and fourth-quarter guidance provided with third-quarter results.”

Consumer Edge, James Albertine

(Equalweight, price target $285)

Raises third-quarter adjusted earnings per share estimate to 5c from an estimate of loss of 10c per share, citing higher Model S and X deliveries in the third quarter versus Consumer Edge’s prior model.

“Tesla has a long way to go in terms of repairing its credibility, which in no small measure will be linked to Musk’s significantly reduced usage of Twitter. We hope Tesla can then take appropriate steps to bolster its C-suite with a seasoned operator in addition to finding a Chairman with significant experience managing a global manufacturer (particularly with respect to dealing with myriad regulatory changes/differences across markets).”

RBC, Joseph Spak

(Sector perform, price target $315)

“Tesla Model 3 production and deliveries were in line with our forecast. Commentary on mix suggest gross margins could be solid this quarter.”

New Street, Pierre Ferragu

(Buy, price target $530)

“Tesla delivered 4,300 more Model 3’s than we (prudently) modeled. This, combined with finished goods inventory coming down materially (vehicles in delivery decreased by 3,200) gives us increased confidence in Tesla achieving positive free cash flow break-even this quarter.”

“Consensus expectations of $80 million free cash flow for third quarter look increasingly conservative, as we see this number potentially beating our $300 million current forecast.”

“We expect Tesla to achieve positive free cash flow every quarter going forward.”

Baird, Ben Kallo

(Outperform, price target $411)

“Higher-than-expected Model S and X deliveries, along with a mix shift towards the dual-motor Model 3, should enable solid third-quarter financial results given their strong margin profile. We believe Tesla could achieve its guidance of being GAAP net income and cash flow positive during the quarter.”

Does not see Tesla raising additional capital in 2018.

“We think street estimates may need to be raised following the solid delivery release, and think third-quarter results in early November may highlight strong cash flows, which could be a positive catalyst.”

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