Tesla Stock Advances On A Tide Of Red Ink.
Investors See Model 3 Success, Although Output Promises Doubted.
“To put Tesla’s growth in context, we note it took Porsche 10 years and four product lines to grow from about 35,000 units to 100,000. Tesla is on course to achieve similar growth in only 3 years,”
Tesla Inc continues to burn cash and threatens to need more, but the stock price persists in thrusting heavenwards with investors still arguing about just how successful the company will be, one day.
Arguments now centre on the launch of the Model 3, the “affordable” Tesla, and the production levels it might reach. The Model 3 is likely to be priced close to $35,000 but probably averaging closer to $45,000.
In the first quarter Tesla’s net loss widened 17 per cent to $330 million compared with the same period of 2016 as sales more than doubled to $2.7 billion. Tesla raised just over $1 billion from shareholders in March to help fund Model 3 production, and this is unlikely to be the last call on their pockets.
Investors are divided on the possible level of Model 3 production and sales, but they all seem to agree that Tesla’s projections won’t come close to reality any time soon.
Morgan Stanley predicts only 2,000 Model 3s will be delivered this year, and 90,000 next year, which is less than half its forecast three months ago. Morgan Stanley analyst Adam Jonas made the predictions in a new report in which he downgraded Tesla to “equal-weight” from “overweight” and kept his target price for the stock at $305. The stock prices has jumped from $180 last December to about $315.
Tesla has said Model 3 production will reach an annual rate of over 500,000 sometime in 2018. Tesla has also said overall production – Model S, Model X and 3 – will reach 500,000 in 2018 with a goal of 1 million by 2020. The 1 million target assumes the addition of the Model Y, a compact SUV, in late 2019 or 2020.
Morgan Stanley thinks this is not even nearly attainable and forecasts Tesla will reach 500,000 Model 3 deliveries no earlier than 2024.
Investment researcher Evercore ISI is a bit more optimistic than Morgan Stanley, expecting 280,000 Model 3 deliveries in 2018 and reckoning Tesla will reach an annual rate of 500,000 at the end of 2019.
Tesla’s plans are very ambitious.
“To put Tesla’s growth in context, we note it took Porsche 10 years and four product lines to grow from about 35,000 units to 100,000. Tesla is on course to achieve similar growth in only 3 years,” Evercore ISI analyst George Galliers said.
Morgan Stanley’s Jonas said he expects formidable competition to emerge threatening Tesla’s sustainable transport and mobility markets and it probably won’t be from traditional auto manufacturers.
“There have been numerous developments that suggest to us the continued preparation of an assault by large tech firms on the market for shared, autonomous electric mobility,” Jonas said.
He points to Google parent Alphabet’s Waymo and Apple and their plans for autonomous transport.
“We are intrigued by how many investors we speak with view Tesla’s biggest competitive risk as coming from the existing auto industry. We do not see it that way. We believe Tesla’s most important competition will ultimately come from the world’s largest, best capitalized tech firms. Many of these firms – such as Alphabet, Apple and others – are already testing fully autonomous vehicle fleets on public roads,” Jonas said.
Tesla may not be able to sustain its position as an independent company, Jonas said, although he stressed Tesla had not commented publicly on the possibility and he had no knowledge of any potential deals.
“We have an increasingly difficult time imagining Tesla as the dominant player and as a stand-alone company longer term. We wonder if the firm is better off finding a partner that can help fund the necessary up-front investment,” Jonas said.