Tesla: The Good, The Bad And The Skepticism

Shares of Tesla Inc TSLA were trading lower by nearly 5 percent after Thursday's market open in reaction to the electric automaker's fourth-quarter report consisted of a worse-than-expected loss.

In a research report following the earnings report, Pacific Crest's Brad Erickson detailed the good, the bad and the unknowns from the report.

The Good

Erickson noted that production of Tesla's more affordable Model 3 sedan will begin in July with shipments expected to begin by the end of the year. The company expects to achieve a 5,000-production run-rate in the fourth quarter and 10,000 per week next year.

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The analyst is now modeling Tesla will deliver 8,000 Model 3 sedans by the end of the year, up from a prior estimate of just 2,000.

The Bad

On the other hand, Erickson pointed out deliveries of Model S sedans fell 5 percent year-over-year over the past three quarters, and the company's own guidance implies further declines in the first quarter.

Meanwhile, the analyst believes demand for the Model X SUV is underperforming relative to performance. As such, it is possible that the Model S and X "appear to be hitting ceilings for their quarterly run-rates."

The Skeptical

Erickson stated that he has become "increasingly skeptical" on Tesla's outlook given the cooling demand. In addition, the company's cash burn is expected to be "large" in the first half of 2017 due to the Model 3 ramp and a new capital raise (after raising $2 billion in May, 2016) could be expected in the bottom half of the year.

"While the product cycle trade of 2017 could continue near term, we continue to believe momentum is pricing in a lot around Model 3 at current levels," the analyst concluded. "Our concerns about ongoing demand remain, risks around Model 3 production and execution are huge, and we are still skeptical around the company's longer-term earnings power."

Shares remain Sector Weight rated with no assigned price target.

At last check, shares were down 4.96 percent at $259.95.