SolarCity Cost Tesla An Earnings Beat, But Bull Arguments Now Stronger Than Bear

Tesla Inc TSLA reported Q4 earnings per share short of expectations, despite a revenue beat. The earnings miss was mainly due to the SolarCity Corp SCTY acquisition and Tesla remains on track for starting limited production of Model 3 in July, Baird’s Ben Kallo said in a report.

Kallo reiterated an Outperform rating on the company, while raising the price target from $338 to $368.

Tesla reported revenue at $2,284.6 million, versus consensus expectation of $2,162.8million. Non-GAAP EPS came in at ($0.69), short of the consensus estimate of ($0.53).

Bull Arguments Stronger

The company expects to ramp Model 3 production to 5,000 vehicles per week in Q4 2017.

“Importantly, vehicle development, supply chain, and manufacturing are all on track to support volume production in 2H:17, and management expects to reach a production rate of ~10,000 vehicles per week in 2018,” Kallo wrote.

Related Link: Why One Analyst Is Gaining Confidence In Tesla's Potential For Profitability

The merger of Tesla and SolarCity exceeded expectations, contributing $77 million of cash in the first six weeks after closing the deal. Tesla believes the SolarCity transaction is on track to generating cash of $500 million by 2019.

The analyst believes Tesla would raise capital ahead of the Model 3 launch and this could lend upside to shares. The capital raise would de-risk the production ramp and “remove an overhang on the stock.”

Kallo mentioned Tesla suited the Trump Administration’s “Made in America” theme, the company had several products in development “which could provide upcoming catalysts” and the company continued to be a leader in Autopilot technology.