Tesla's Q1 Deliveries 'Better Than Feared,' KeyBanc Stays Positive For The Near Term

Tesla Inc TSLA totalled nearly 30,000 deliveries last quarter, with all models falling below consensus estimates. But to KeyBanc Capital Markets, the report was “better than feared.”

The Rating

KeyBanc analysts Brad Erickson and Elliot Arnson maintained a Sector Weight rating on the stock and proposed a $300 fair value.

The Thesis

Despite the analysts’ general contentment, the 13-percent year-over-year declines in Models S and X proved troublesome.

“Part of our Sector Weight thesis longer term has been the view that at some point, investors might start to care that a significant portion...of the Company’s gross profit pool was no longer growing, and so while investors largely care about Model 3 for the moment, that S/X continue to point toward these trends makes multiple expansion arguments more challenging,” Arnson and Erickson wrote in a Wednesday note.

The analysts justify long-term ambivalence by rejecting perceptions of Tesla’s superiority in manufacturing, software, artificial intelligence and batteries.

They remain optimistic in the near term, however, considering Tesla’s “very low bar” for Model 3 production and improvements in profitability. Tesla produced 2,020 Model 3s in the last seven days of the quarter — a loss against its 2,500-per-week target but a win by Street standards.

“We believe the longer-term bulls care little about what the actual number is – only that it improved,” they wrote. “If and as the number continues to climb to something approaching 4,000-5,000, we think Model 3 gross margins should turn profitable, which doesn’t indicate it will meet long-term targets, but should prove to be better than the more bearish expectations of the car being EBIT negative, even at scale.”

Price Action

At the time of publication, Tesla was set to open down 4.4 percent at $255.72.

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Photo courtesy of Tesla.