Tesla Meets Its Model 3 Production Goal, But Analysts Remain Largely Bearish

Tesla, Inc. TSLA, for the first time since Model 3 production began, has met its production goal.

The automaker known for its autonomous technology and futuristic vision shared the good news Tuesday after a difficult stretch for the company, but it wasn't enough to move the stock out of the red. 

Tesla shares were down 2.07 percent at the close Wednesday, one day after the company released its third-quarter production and delivery numbers. The company did not reiterate its prior forecast of Q3 and Q4 profitability.

Its stock has been rocky in the wake of a Securities and Exchange Commission lawsuit against CEO Elon Musk over his haphazard announcement that Tesla could go private. The two parties reached a settlement deal Saturday. 

Sell-side analysts were impressed with Tesla's Model 3 production numbers, but the delivery metric fell just short of the consensus estimate. 

Barclays

Brian Johnson of Barclays reiterated an Underweight rating on Tesla with a $210 price target. 

“With stronger-than-expected Model 3 and (somewhat surprisingly) Model S/X deliveries, we now forecast a modest non-GAAP profit for Q3," the analyst said in a Tuesday note. 

They forecast a 13-cent-per-share non-GAAP profit, but no GAAP profit due to the possibility of the company being unable to sell ZEV credits.

Barclays expressed concern over Tesla being at a distinct cost disadvantage in China, which could potentially make the Model 3 relatively unaffordable in that country due to new tariffs.

Loup Ventures

“While the numbers were in line with guidance, the update is incremental, given Tesla investors have been conditioned to brace for negative news. This is a good day for Tesla,” said Loup Ventures managing partner Gene Munster.

Tesla’s cash flow and profitability remain questionable, the sell-side analyst-turned-venture capitalist said in a blog post. 

“We believe, based on the level of Model 3 deliveries, of which 11,100 were vehicles in transit from the [June 2018] quarter, the company will likely be cash flow positive (excluding the impact of non-recourse lease financing) and slightly profitable.”

Loup expects the cash balance in Q3 to increase slightly, assuming the Model 3 reaches a 15-percent gross margin. 

JPMorgan

Analyst Ryan Brinkman reiterated an Underweight rating and $195 price target for Tesla.

“While the market had largely discounted the better than consensus deliveries (TSLA shares declined 3.1 percent Tuesday) and we continue to believe the firm is overvalued on the fundamentals, the Q3 production and deliveries report is a positive relative to our model,” the analyst said. 

Chinese tariffs pose a decent threat to Tesla, as they are 40 percent for vehicles imported from the U.S. compared to 15 percent for other countries, Brinkman said. 

“We are increasing our Q3 EPS estimate to negative $1.35 from negative $1.66 prior and our Q4 EPS estimate to negative 57 cents from negative 82 cents prior."  

Goldman Sachs

Goldman Sachs analyst David Tamberrino reiterated a Sell rating on Tesla with a six-month price target of $210.

“We believe the company’s language within the release further raised investor concerns on demand for its products. On the Model S and X, while demand was characterized as ‘high,’ no order rate metrics were provided."

This raises questions about Tesla’s new relative disadvantage to locally produced cars within China, as the country represented 17 percent of revenue in 2017, the analyst said. 

Bank of America Merrill Lynch

BofA analyst John Murphy reiterated an Underperform rating on Tesla with a $200 price objective.  

“Considering TSLA’s past challenges in ramping up production, we expect it will take some time before the Model 3 production reaches material scale, and thus, costs related to the ramp may outweigh the potential benefits of operating leverage on higher volumes for some time.”

A combination of Tesla’s better-than-expected deliveries and anticipated inventory workdown could result in higher cash flow and gross margins, the analyst said. 

Tesla still has issues that need to be fixed, Murphy said: 

• A Model 3 production ramp and potential operational challenges due to an expanding product line.
• Potential material cash burn in upcoming quarters.
• The prospect of incremental competition.
• Elon Musk’s ongoing investigations and regulatory consequences from the privatization tweets.

Related Links: 

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

'The Key To Mobility': Ford, Lyft Execs Talk Autonomous Vehicle Development At NYT Event 

Photo courtesy of Tesla.