Tesla shares seen soaring by Berenberg on expected Model 3 profitability - InvestingChannel

Tesla shares seen soaring by Berenberg on expected Model 3 profitability

Berenberg analyst Alexander Haissl raised his price target for Tesla to $500 as he believes the company will meet its 25% gross profit margin forecast for the Model 3. The analyst argued that the widespread assumption that Model 3 margins can be directly inferred from Model S/X is “inherently almost totally flawed.” STRONG MODEL 3 PROFITABILITY: In a research note to investors, Berenberg’s Haissl raised his price target for Tesla shares to $500 from $470, while reiterating a Buy rating on the stock. The analyst noted that investors have largely dismissed the prospect of 25% gross margin on Tesla’s Model 3 amid production bottlenecks and quality issues, but he believes the widespread assumption that Model 3 margins can be directly inferred from Model S/X is “inherently almost totally flawed.” On capital efficiency, labor efficiency and material use, the Model S has a substantial deficit to industry peers, and for that reason “cannot reasonably be seen as the yardstick” to measure the profitability of the Model 3, Haissl contended, adding that the latter should be produced with efficiency levels at least on par with best-in-class manufacturers. Further, the analyst argued that the Model 3 gross margin target “is not hope, but reality,” seeing savings of $28,500 driven by lower labor, depreciation and material costs, and the elimination of premium content set to be a key driver. Regarding competition, Haissl pointed out that strategies from traditional OEMs are still characterized by a low-cost and low-risk approach, which in his view is likely to be uncompetitive compared with Tesla. He expects Tesla to remain the battery technology leader, as traditional OEMs have shown little effort to commit meaningful capital into battery technology. GOLDMAN SEES $10B IN CAPITAL NEEDS: Last week, Goldman Sachs David Tamberrino told investors in a research note of his own that he estimates Tesla may require over $10B in external capital raises and debt re-financing by 2020 to fund current operations, anticipated new product spending, and incremental capacity additions, including his expectations for a new vehicle plant and battery giga-factory in China. The analyst noted that capital needs may be funded through multiple avenues, including new bond issuance, convertible notes, and equity, though he notes that issuing incremental debt may weigh on the credit profile of the company while issuing additional equity or convertibles at lower premiums would dilute current shareholders. Tamberrino reiterated a Sell rating and $195 price target on Tesla shares. PRICE ACTION: In morning trading, shares of Tesla have gained over 3% to $286.06.

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