A Mixed Street Reaction To Tesla's Q4 Deliveries

Whether Tesla Inc TSLA’s fourth-quarter deliveries were good or bad depends entirely on perspective.

The market didn’t seem to like the numbers. Traders triggered a 3-percent pullback in the stock. But analysts saw distinct reasons for optimism.

Rare Outperformance Signals Earnings Beat

Tesla largely outperformed Street estimates on Model S and Model X deliveries, but in only one instance did it beat on Model 3.

Morgan Stanley’s conservative forecasts were outdone by 55 percent, signaling a potential fourth-quarter revenue beat of 10 percent. At the same time, Tesla closed the term with a Model 3 production rate more than 50 percent higher than analyst Adam Jonas’ first-quarter delivery forecast, heralding another impending earnings beat.

Progress Makes Proponents

Despite the announced delay in ramping, Loup Ventures remained optimistic on Tesla’s position in the electric vehicle race and “upbeat” on Model 3 scaling, which appeared to take hold in December.

“The ramp has the markings of the exponential production curve that Musk has promised,” managing partner Gene Munster wrote of accelerated rollouts. “In other words, the ramp is beginning, albeit later than expected.”

Nomura offered similar sentiment on the Model 3, which missed its fourth-quarter estimates by more than 50 percent.

“While our forecasts decrease for the first half of 2018, we are encouraged by the progress on Model 3 production and continue to expect Tesla to deliver substantial [100-percent-plus] revenue growth in 2018,” analyst Romit Shah said.

The ‘Slow And Steady’ Risk

KeyBanc added that the ramping is more important than the miss to Tesla’s story.

“While the optics of 1,550 Model 3 cars delivered is disappointing on the surface, consistent with our preview, we believe evidence of progress is likely the more important driver for the stock,” analyst Brad Erickson said in a note.

KeyBanc identified both pros and cons to the ramp delay. On the one hand, Tesla’s embrace of a more gradual scaling, emphasizing quality and efficiency over volume, could be a potential risk to 2018 estimates. On the other hand, it could buy management time to improve gross margins while placing blame on scale.

Tigress Financial interprets the delay with skepticism. Analyst Ivan Feinseth said Tesla is “way behind” even reduced shipment expectations and is nearly six months behind last summer’s guidance.

“The problem now becomes that it could begin to lose customers waiting for Model 3s,” Feinseth said. “It also opens up a window for increased competition as other manufacturers will start to bring luxury electric cars to the market this spring. It also gives future Tesla customers cause for concern about Tesla’s production and vehicle support capabilities.”

The Underwhelming X

The effects of the pushback could be compounded by plateauing growth in Model S and X units, as well as the Model X’s relative underperformance.

“Delivery volumes for the X remaining meaningfully below the S (S deliveries were 18 percent ahead of X in 2017) highlight that that car has not fully lived up to expectations as the luxury crossover SUV market is significantly bigger than the luxury sedan market,” said KeyBanc's Erickson. 

Loup Ventures' Munster increased 2018 and 2019 forecasts for the Model X while modestly lowering them for Models S and 3.

Street Ratings

• KeyBanc maintained a Sector Weight rating;
• Morgan Stanley maintained an Equal-Weight rating with a $379 price target;
• Nomura maintained a Buy on the stock with a $500 price target; and
• Tigress Financial maintained a Neutral rating.

Tesla shares closed Thursday down 0.83 percent at $314.62. 

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Photo courtesy of Tesla.