UBS: Changes To Tesla's Automation Process Are 'Concerning'

Tesla Inc TSLA already missed first-quarter production targets, and as it prepares to release the period’s financial figures, some sell-side analysts are pessimistic. 

The Rating

UBS analyst Colin Langan maintained a Sell rating on Tesla with a $195 price target.

The Thesis

As it is, Tesla’s 2,000-per-week exit rate for the Model 3 in Q1 is not guaranteed to hold through the next term. UBS sees additional risks around the vehicle’s ramp — and consequently, profits and cash flow — amid plant downtime and the removal of an automated production line. (See the analyst's track record here.) 

“We think the changes to the automated line at this late stage are concerning and raise questions about the viability of the 10,000-per-week target and TSLA’s long-term goal of ‘reinventing the machine that makes the machine,’” Langan said in a Thursday note.

Tesla can potentially fix its production issues, but Langan said reputational risk from reports of low quality and Autopilot flaws could be more difficult to recover from.

UBS anticipates Tesla will raise capital by the third quarter to support plans for its Semi, Roadster, Model Y and infrastructure.

For the coming earnings report, Langan forecast a loss per share of $4.56 against the consensus estimate of a $3.69 loss. The analyst expects a sequential decline in gross margins from 13.8 percent to 11.2 percent, with cash burn of around $900 million.

Price Action

Tesla shares were up 1.84 percent at the time of publication Thursday. 

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Photo courtesy of Tesla.