Tesla Analyst: Europe Business Steady, 'Demand Challenges Remain'

Tesla Inc TSLA shares ticked higher on Thursday after one analyst said international trade disputes doesn’t seem to be hurting Tesla’s Euopean business as much as feared.

The Analyst

Wedbush analyst Daniel Ives reiterated his Neutral rating and $220 price target for Tesla.

The Thesis

Ives said checks on third-quarter Model 3 demand in Europe suggest the business is holding steady despite trade tensions.

Tesla is implementing price hikes on its vehicles in China starting on Friday after the Chinese government said it plans to reinstate 25% tariffs on imported U.S. vehicles starting in December. Tesla imports all of the vehicles it sells in China, and investors can expect the company to push hard to get as many vehicles shipped there as possible prior to December.

If the European business can stay on track, Ives said Europe can help offset weakness in Tesla’s China business. Ives said the bigger question in Europe will be whether or not Tesla can continue to ramp-up European delivery to reach 100,000 units over the next 12 months and whether or not European demand will be as high as anticipated. In the meantime, Ives said Tesla still has to prove its business model is viable on a large scale and "demand challenges remain."

“In essence, unless self driving functionality and other software upgrades are sold with lower priced Model 3 units it will be a major challenge for Tesla to ramp its business model and gross margin profile in line with long term targets and therefore show profits on an ongoing basis,” Ives said.

Benzinga’s Take

News that Tesla’s European ramp in the third quarter is on track despite trade war concerns in good news for Tesla in the near term. However, U.S. demand in the second half of the year remains a question mark. Until Tesla can demonstrate it can consistently turn a profit, the stock will likely continue to lag the market. Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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