KeyBanc: The Tesla Model 3 Is Fast And Elegant, But Maybe Too Simple

Tesla Inc TSLA’s Model 3 is now the best-selling electric car in the U.S., according to Bloomberg, and one analyst anticipates increasing demand.

The Rating

KeyBanc Capital Markets analyst Brad Erickson maintained a Sector Weight rating on Tesla.

The Thesis

In discussions with Tesla investor relations representatives, Erickson said he “detected low confidence of no further production bottlenecks,” although hiccups will not necessarily weigh on demand. The Model 3 order book has grown week-over-week in spite of delays — a phenomenon KeyBanc expects to drive near-term stock appreciation.

Erickson remains ambivalent about the product’s potential, though. He found it “unbelievably fast” with an interior more elegant than expected, but said rough steering and the lack of a dashboard may deter buyers.

“The car mostly met our expectations: impressive performance-wise, but we remain unconvinced that the simple interior can compel the sustainable over-$40K buyer given the lack of range (we’ll see),” the analyst said in a Monday note. KeyBanc projects Model 3 gross margin underperformance.

Tesla’s recent executive departures are also factored into KeyBanc's Sector Weright rating. Erickson attributed the departures to better opportunities and involuntary layoffs that are not indicative of internal problems. Even in the most bullish case, Tesla investors are ascribing too much value to ostensible superiority in innovation, Erickson said.