Analysts debate Tesla's continued struggle making more Model 3s - InvestingChannel

Analysts debate Tesla’s continued struggle making more Model 3s

Shares of Tesla (TSLA) are sliding after the company pushed back its weekly Model 3 production rate goal to the second quarter. Several Wall Street analysts commented on the news, with Morgan Stanley analyst Adam Jonas pointing out that the announcement should not come as a surprise, and his peer at Baird arguing that Tesla should be able to ramp Model 3 production and demand may accelerate with positive reviews from early customers. PRODUCTION, DELIVERIES UPDATE: Last night, Tesla said that in Q4 it delivered 29,870 vehicles, of which 15,200 were Model S, 13,120 were Model X, and 1,550 were Model 3. “This was once again our all-time best quarter for combined Model S and X deliveries, representing a 27% increase over Q4 2016, and a 9% increase over Q3 2017, our previous best quarter. (…) During Q4, we made major progress addressing Model 3 production bottlenecks, with our production rate increasing significantly towards the end of the quarter. In the last seven working days of the quarter, we made 793 Model 3’s, and in the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3’s per week. (…) we expect to have a slightly more gradual ramp through Q1, likely ending the quarter at a weekly rate of about 2,500 Model 3 vehicles. We intend to achieve the 5,000 per week milestone by the end of Q2,” the company stated in its update. BUY ON WEAKNESS: Commenting on the news, Morgan Stanley’s Jonas noted that Tesla pushing out its production target of 5,000 Model 3 per week to the end of the second quarter “should not at all be a surprise to the market.” While Jonas reiterated an Equal Weight rating on the shares, the analyst told investors that he would “buy the dip” in Tesla if the delayed Model 3 ramp causes weakness. Meanwhile, Nomura Instinet analyst Romit Shah argued that he views Tesla’s fourth quarter vehicle delivery results as mixed since Models S and X exceeded expectations while Model 3 deliveries missed and Tesla lowered its Model 3 production target again. Overall, the analyst told investors in a research note of his own that he is encouraged by the progress on Model 3 production, and that he continues to expect Tesla to deliver over 100% revenue growth in 2018. Further, Shah pointed out that he is optimistic that production constraints are improving, reiterating a Buy rating and a $500 price target on the shares. Also bullish on Tesla, Baird analyst Ben Kallo noted that the slower ramp provides insight into production bottlenecks and that he believes the company will be able to ramp Model 3 production. Furthermore, the analyst argued that demand could accelerate with positive reviews from early customers, and the Model 3’s total addressable market could be even larger than bulls project. Kallo reiterated an Outperform rating and $411 price target on the stock. DELAYS MAY BECOME BIGGER ISSUE: Not as bullish, Barclays analyst Brian Johnson noted that this is the third time in 20 months that Tesla is straying from its formal Model 3 target. The analyst told investors that production delays may become more of an issue, while reiterating an Underweight rating and $210 price target on Tesla shares. Meanwhile, his peer at Citi said further delays on the Model 3 production ramp brings a renewed focus on Tesla’s balance sheet risk. Analyst Itay Michaeli pointed out that it may also keep the shares range-bound as investors seek further signs of progress. He reiterated a Neutral rating and a $367 price target on the shares. PRICE ACTION: Near noon, shares of Tesla are down fractionally to $315.91, well off the stock’s worst levels near $305 earlier in the session.