Tesla's Growth Plan May Be Too Steep; Deutsche Bank Projects 355,000 Units By 2018

Deutsche Bank’s Rod Lache believes that Tesla Motors Inc’s TSLA growth plan was steep, with the company targeting annual production of 500,000 units by 2018, two years ahead of the previous plan.

The analyst maintained a Hold rating on Tesla Motors, while raising the price target from $280 to $290.

1Q16 Earnings Light

The company’s 1Q16 earnings came in slightly below the estimates, with auto gross profits at 20 percent, implying very low gross margins on Model X and partially offset by lower than anticipated opex.

“Tesla also reiterated their view that demand fundamentals are strong, they still expect to achieve 80-90k deliveries this year, and they still expect to overcome Model X manufacturing challenges by year end,” Lache mentioned.

Management also expressed hopes of sustaining a growth rate of 50 percent, which implies over one million units by 2020.

Aggressive Growth Plan

According to the Deutsche Bank report, “Investors are well aware of Tesla’s propensity for aggressive projections. That said, there is no question that this represents a significant development.”

Tesla Motors intends to raise capital and ramp capital spending by 50 percent to support its “steepened” growth plan.

Lache noted that although there were execution risks to this growth plan, management emphasized that it was adopting a “conservative strategy” with regard to design and engineering risk.

Contrary to the company’s target, Lache estimates annual production of 355,000 units in 2018 and 755,000 in 2020.