Looking Beyond The Miss: Tesla's Balance Sheet Should Support Model 3 Launch As Solar Roof Heads Into Production

Tesla Inc TSLA shares are down 4.5 percent after the company reported a large first-quarter earnings miss Wednesday. However, Baird analyst Ben Kallo said the 2017 Tesla story is still on-track. According to Kallo, upside in Tesla’s stock is all about executing on its products.

Looking Beyond The Miss

“Importantly, the Model 3 remains on track for July production and should ramp to ~5k Model 3 vehicles per week by YE:17,” Kallo explained. “Additionally, TSLA expects to begin production of the solar roof in Q2, and remains well capitalized for its upcoming growth initiatives.”

Rather than focusing on disappointing earnings, Kallo pointed out revenue and gross margins both topped expectations in Q1. Most importantly, the company maintained its delivery guidance of 47,000-50,000 for the first half of 2017. The company expects to provide delivery guidance for the second half of the year as soon as it begins Model 3 production.

While Tesla bears continue to question Tesla’s income losses and negative cash flow, Kallo said he is confident Tesla’s balance sheet can support the launch of the Model 3 and the infrastructure associated with its production ramp.

Tesla ended Q1 with about $4 billion in cash and is targeting about $2 billion in total capex in the first half of the year. The infrastructure associated with such a large-scale product launch certainly doesn’t come cheap. Tesla is planning on building about 100 retail, service and delivery locations and doubling its number of superchargers to around 10,000. Kallo noted Tesla is also planning on offering mobile vehicle repair units as well.

Baird maintains an Outperform rating on Tesla and a $368 price target on the stock.

At time of publication, shares of Tesla were down 4.87 percent at $295.88.

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