Tesla's Execution Must Now Come Into Focus

Goldman Sachs’ Patrick Archambault mentioned that Tesla Motors Inc TSLA has moved its timeframe to deliver 500,000 units from 2020 to 2018, which could lead to the need for a potential capital raise to fund growth.

The analyst maintained a Neutral rating on the company, while raising the price target from $245 to $250.

Archambault stated that Tesla reported its 1Q16 non-GAAP EPS above the estimate, driven by higher revenue and lower opex, marginally offset by lower gross margins.

Related Link: Tesla's Growth Plan May Be Too Steep; Deutsche Bank Projects 355,000 Units By 2018

Timeline Revised

Apart from moving forward its timeline for achieving 500,000 deliveries, the company maintained its guidance of 80,000 to 90,000 deliveries in 2016.

Archambault believes “the move to build out additional capacity and accelerate production makes sense given the high reservations, but does not alleviate the degree of difficulty of launching a high volume product.”

Execution Risks

The analyst also pointed out that the average gap between unveiling a product and its production has been 3.5 years for Tesla, which makes the targeted timing for Model 3 a difficult one, even without the ramp.

“Although management disagrees, we think that the Model X will be viewed as a litmus test for Tesla’s manufacturing capability and that the back-end loaded nature of the delivery guidance,” Archambault noted.

The guidance requires production of 25,000 units each in Q3 and Q4, which the analyst believes “does leave some near-term execution risk.”