From KeyBanc, A Pessimistic Prediction For Tesla's Q4 Deliveries

Tesla Inc TSLA is expected to announce fourth quarter delivery data at some point next week and at least one notable Wall Street analyst is offering a pessimistic view.

The Analyst

KeyBanc Capital Markets' Brad Erickson maintains a Sector Weight rating on Tesla's stock with no assigned price target.

The Thesis

Tesla's fourth quarter delivery figures are likely to come in short of sell-side expectations, but "acceptable" enough relative to buy-side standards, Erickson said in a note. Based on checks and conversations with 18 different Tesla stores, the analyst projects Model 3 deliveries to be around 5,000 in the fourth quarter, which is notably below his prior estimate of 15,000.

Despite what appears to be a concerning estimate of just 5,000 deliveries, investors shouldn't necessarily view this as a huge negative, Erickson said. Bullish investors are mostly concerned with seeing Model 3 cars being produced with minimal defects and are receiving favorable reviews from consumers. Nevertheless, Tesla may be fighting against the clock as it has "a few more quarters before the company is more harshly judged" especially in terms of gross margin ramp.

Tesla's Model S and Model X deliveries for the quarter are "tracking generally in line" with management' expectations that the bottom half of 2017 deliveries would come in ahead of the first half total of 47,000 cars.

Bottom line, the analyst's longer-term concerns remain unchanged, including sales growth of Model S and Model X aren't improving, gross margins are unlikely to ramp in-line with expectations, and a "cautious" view on the ultimate Model 3 demand at a price point, which is needed to achieve the company's gross margin target.