Needham: Tesla Nearing The End Of Its Growth Spurt

Tesla Inc TSLA reported more than 200-percent revenue growth over the last three years — and still failed to turn a profit. During that time, bulls justified Tesla’s high market cap with remarkable sales growth, but one analyst says that growth is losing steam.

The Analyst

Needham analyst Rajvindra Gill maintained an Underperform rating on Tesla.

The Thesis

Last week, Tesla reported a 45-percent year-over-year decline in first-quarter Model S and X deliveries. Needham suspects the rate accompanied a 45-percent sales decline.

“The bulls have made the argument that demand was pulled forward in [the fourth quarter] before the tax credit expired, which led to the significantly decline in [the first quarter],” Gill wrote in a Monday note.

“However, a closer look at [fourth-quarter] deliveries showed demand for Model S/X deliveries were flat Q/Q for the fourth quarter and declined 3% year-over-year, despite the aggressive year-end incentives, price cuts and tax credit being intact.”

The analyst anticipates revenue growth deceleration. After an 83-percent growth rate in 2018, Gill forecast a drop to 12 percent in 2019 and 15 percent in 2020.

Needham cut first-quarter revenue estimates from $6.5 billion to $4.9 billion, cited an unfavorable mix shift in dropping margin forecasts from 17.5 percent to 16.3 percent and predicted a non-GAAP loss of 9 cents per share.

The pressure Tesla faces is expected to remain through the second quarter, Gill said.

“We believe a demand air pocket will persist until we see evidence of international deliveries."

The analyst's expectation of “long-term structural challenges” inspired a decrease in full-year estimates from EPS of $4.30 on $25.8 billion in revenue to $1.25 EPS on $24 billion in sales.

“Net, we contend that investors will struggle with justifying a high valuation if overall sales growth continues to decelerate (or plateaus) and margins remain under pressure," Gill said.

Price Action

Tesla shares were down 1 at $272.21 at time of publication Monday.

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