Gene Munster Goes The Distances On Tesla: A Look At Short- Vs. Long-Term Expectations

Tesla Inc TSLA surprised Wall Street Wednesday, posting a strong second-quarter earnings beat.

EPS came in at negative $1.33 with $2.79 billion in sales compared to consensus estimates of negative $1.80 and $2.55 billion in sales. The stock jumped to open Thursday at $34.

The results helped bolster Loup Ventures co-founder Gene Munster’s already bullish view of Tesla, although he acknowledged “there will be disappointments” as its story plays out.

“We caution that it will take time for the Tesla story to unfold … but Tesla’s [Q2] results and outlook around production and demand suggest the company is on a track to be a significant beneficiary in the global paradigm shift to EV and autonomy,” said Munster in a note.

Tesla’s Results Bode Well For The Short-Term

Management said on the call that the Model 3 production ramp is on track to meet guidance.

But if that was not enough for investors, the company also reported 455,000 net reservations for the car and has seen an average of 1,800 added daily since delivering the first vehicle off the line July 28.

Munster highlighted Tesla has not seen Model S and Model X sales cannibalized by the Model 3, a substantial analyst fear.

Among other points that stuck out to Munster were Tesla’s higher-than-expected gross margins and reaffirmed capital expenditure and profitability guidance.

Big Things To Come, But ‘Brace For Future Disappointments’

Munster sees six potential disappointments for investors over the next two years.

First, the company may need to raise more money. One reason for that might be to work on potential disappointment No. 2, missed production targets.

Tesla may need the capacity to produce as much as 600,000 cars a year, in which case a new factory is warranted, disappointment No. 3.

Fourth, Teslas may not be fully autonomous until 2021 rather than in 2019. Besides missing that target, 2019 could also be when potential disappointment No. 5, slipping demand, is caused by a reduction in federal tax incentives.

Finally, other automakers and tech companies will continue to announce progress toward their own electric and autonomous vehicles.

Gigafactories 4–6 Are A Huge Head Start For Tesla

Related to potential disappointments two and three is one of the earnings call’s most notable points: CEO Elon Musk saying a new gigafactory would likely be built in China.

That brings the number of expected new gigafactories to three, with the other two to be built in the United States and Europe, respectively.

Munster believes it will take up to six years to complete these factories. But despite being years away, the very fact that plans are in the works is an advantage for Tesla.

“Other automakers need to build factories at a similar scale and have yet to even break ground on their version of a Gigafactory,” noted Munster. Traditional automakers saw big declines in sales in July, furthering pressure on them to innovate.

The new gigafactories would help to solve Tesla’s biggest challenge: production.

Tesla’s Core Advantage

Despite the significant challenges ahead, Munster highlighted the most important reason he has faith in Tesla when he visited Benzinga HQ Wednesday before the earnings report.

The people with a stake in Tesla are on a “shared mission to change the world,” said Munster.

All of Tesla’s employees, “from the management team to the custodians,” are shareholders and take part in a culture that “is not something that exists at traditional automakers,” he added.

At last check, shares of Tesla were up 6.73 percent at $347.81.

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