Tesla: Bear Vs. Bull Case Rests On Model 3, Capital Structure

Tesla Inc TSLA shares are down over five percent following the company’s fourth-quarter earnings after the close on Wednesday. The company beat sales estimates on its latest report, despite burning a record $1 billion in cash flow in the quarter.

With Tesla moving aggressively towards its Model 3 production ramp, set to launch in July, analysts believe the company will look to raise capital to avoid hindering production on the highly anticipated launch. Tesla is expected to spend $2 billion–$2.5 billion in capex in the first half of 2017.

Analyst Commentary

“We agree and believe clarity on the company’s capital plan and completion of a capital raise would be a positive catalyst for shares” said Oppenheimer on Wednesday. “We believe guidance for 250,000 annual production runrate by 4Q17 is ahead of Street expectations and comes with significant execution risk. As the company works towards lofty manufacturing efficiency goals in scaling to 1 million annual vehicle production targets, we expect bears to focus on earnings power of the business by 2020.”

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

Oppenheimer remains on the sidelines given the production execution risks that persist, while it waits for more clarity on Tesla’s capital structure. On the earnings call, it was announced that Tesla Chief Financial Officer Jason Wheeler was leaving the company to enter the public sector, and Deepak Ahuja will return to the position, one he held from 2008 to 2015.

Bull Case:

• Gigafactory continues to ramp ahead of expectations.
• Tesla begins to reveal ways to monetize its network beyond hardware sales.
• Model 3 production ramps on schedule.

Bear Case:

• Model 3 production is delayed into second-half 2018.
• Gigafactory ramp is delayed.
• Capex exceeds investor expectations.

Oppenheimer maintains a Perform rating on Tesla and sees FY 2017 revenue of $10.13 billion, after the company guided first-half 2017 vehicle shipments of 47,000–50,000. Tesla expects to reach annual production run rate of around 250,000 by fourth-quarter 2017, and surpass ~500,000 in 2018.