JPMorgan said it doesn't believe Tesla Motors Inc TSLA will be able to achieve 500,000 units of total production in 2018 (or 100,000 to 200,000 units of Model 3 production in 2017).
The Production Forecast And Subsequent Concerns
Tesla said it will produce 500,000 units not in 2020, but rather now in 2018 —fully two years ahead of plan.
"We previously held some hope that, with improved execution, Tesla could prove relative skeptics such as ourselves wrong, by in fact ramping to 500,000 units by 2020. We think they stood an outside chance of doing this. But these new targets we think standstill less chance of being accomplished within the given more aggressive timeframe," analyst Ryan Brinkman wrote in a note.
Answering why management would create an even more challenging uphill climb for itself, Brinkman said an acceleration of capacity provides "perfect rationale for a large equity capital raise" which the electric maker would need given ongoing cash burn.
Brinkman said another reason could be that "prior plans for a more gradual build-out of Model 3 capacity and assembly may have discouraged additional deposits or encouraged refunds of deposits."
"[I]f it became clear that new depositors may have to wait not a couple but several years or more to take delivery of their car — by at least targeting an aggressive build schedule, Tesla can continue to receive these pre-orders and corresponding deposits," the analyst elaborated.
In addition, the analyst warned that the average selling price for Model 3 will likely be "much greater than the advertised starting price." Tesla may also face intensifying competition from the likes of General Motors Company GM, Nissan Motor Co Ltd (ADR) NSANY and others in the mainstream category, and Mercedes, Audi (AUDI AG NPV AUDVF) and BMW on the higher end.
Tesla's Guidance, Analyst's Expectations
Meanwhile, Tesla reiterated its prior guidance of 2016 full-year deliveries in the range of 80,000 to 90,000 units, predicated on an average production run-rate of 1,600 to 1,800 units per week. Brinkman "now forecast deliveries of 80,810 units (52,412 Model S + 28,398 Model X) versus prior forecast of 81,070 units and towards the low end of the company issued guidance."
The analyst now expects the company to post a loss of $0.45 a share in the second quarter versus prior estimate of a profit of $0.04 after Tesla guided second quarter deliveries of 17,000 units versus JPMorgan's estimate of 18,750 units heading into the earning release.
However, the analyst raised his Model 3 projections to 50,000 units in 2017 (versus 20,000 prior, and and guidance of 100,000 to 200,000). Brinkman, who has an Underweight rating on Tesla, also raised his price target on the stock to $185 from $170.
Deutsche Bank's Rod Lache also believes Tesla's growth plan is steep, with the company targeting annual production of 500,000 units by 2018 – two years ahead of the previous plan. The analyst maintains a Hold rating on Tesla, while raising the price target to $290 from $280.
At time of writing, shares of Tesla were down 4.0 percent at $213.66.
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