Bank Of America: Tesla's Q3 Numbers 'Good, Not Great'

Tesla Inc TSLA closed down 4.1 percent Tuesday despite beating third-quarter Model 3 delivery estimates. Bank of America Merrill Lynch considers the market move just.

The Rating

Analysts John Murphy, Aileen Smith and Yarden Amsalem maintained an Underperform rating on Tesla with a $200 price target.

The Thesis

Tesla fell short of Bank of America forecasts for Model X and Model S deliveries, but its strong Model 3 metrics made up for the lagging lines.

“Admittedly, TSLA 3Q:18 deliveries came in ahead of expectations as throughput from production to delivery improved, and will likely be construed positively by the investment community today,” the analysts wrote in a note.

By their assessment, the quarter’s deliveries, strong mix and forecasted inventory workdown could drive better-than-expected cash flow and gross margins in the third quarter. Altogether, the factors would delay Tesla’s appeal to the capital markets.

“However, we believe many of these elements (particularly mix and inventory) are transitory in nature,” they wrote. “In addition, there still remain a number of material issues that remain ahead for the company.”

Their skepticism lies in production ramp and operational challenges associated with an expanding product portfolio; expectations for material cash burn and capital raises; rising competition and long-term obsolescence; and ongoing investigations into the CEO’s behavior.

Perceptions of “ongoing production/logistics woes” were vindicated by Tesla’s recent application to construct a new tent — a temporary solution for nagging capacity issues.