KeyBanc: What Bulls, Bears Like In Tesla's Q2

Tesla Inc TSLA CEO Elon Musk deserves credit for restoring some faith and credibility in the company, but not enough for a bearish turn on the stock, KeyBanc Capital Markets said after the automaker's second-quarter print. 

The Analyst

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

The Thesis

Tesla's bulls have six key points to cheer, Erickson said in a research report. (See the analyst's track record here.)

They are:

• Tesla's reiteration of being net income positive as of the third quarter.
• Model 3 production continues to ramp meaningfully.
• Tesla should hit its gross margin target earlier than expected — by the second quarter of 2019 the latest.
• Model 3 orders hit an inflection point a few weeks ago.
• Chinese production should come online in three years and be financed by Chinese banks.
• Musk apologized multiple times for last quarter's conference call blunders.

Bears are likely to emphasize the following, the analyst said:

• The company's cash burn of $740 million in the quarter brings its total cash burn for the first half of 2018 to $1.79 billion.
• If Model 3 average selling prices move lower from cheaper versions, the company may have trouble hitting its gross margin guidance.
• Musk's 2020 guidance of selling 1 million cars may be overly optimistic and needs to be reflected in valuation models.

Overall, the near-term setup for Tesla skews positive given supply constraints, optimism from China and a potential Model Y announcement in 2019, Erickson said. On the other hand, the long-term setup remains less positive as Tesla's assumed innovative superiority is "well priced-in" at current levels and margins, growth and multiples will normalize over time, he said. 

Price Action

Tesla shares were trading up 9.69 percent at $329.99 premarket Thursday. 

Related Links:

Goldman, UBS Remain Tesla Bears Ahead Of Q2 Print, See Capital Raise As Likely

Needham Downgrades Tesla, Says Model 3 Refunds Are Outpacing Deposits

Photo by Brett Hershman.