Tesla Investors Still See Promising Future After Poor Results.
Model 3 will be unveiled at the end of March.
Tesla Motors financial results for 2015 looked poor on the surface, but the company’s upbeat outlook for 2016 convinced some investors that good times are still on the agenda.
In 2015’s fourth quarter, Palo Alto, California-based electric car maker Tesla’s net loss almost tripled to $320.4 million. The operating loss was $113.9 million in the quarter, after analysts had pencilled in a small profit.
Tesla said it could achieve a net profit in the last quarter of 2016.
Tesla’s fourth quarter sales rose 27% from the same period last year to $1.21 billion. Its full year net loss was $889 million, on sales of $4.05 billion.
Analysts liked Tesla’s statement that deliveries of Model S sedans and Model X SUVs will reach to between 80,000 and 90,000 in 2016, with Model X weekly production expected to peak at around 1,000 a week in the second quarter.
Tesla also fought off worries about the future of the mass market little Model 3, which is still slated for launch by the end of 2017. The Model 3 will be unveiled to the public for the first time at the end of March, according to Global Equities Research.
“Model S gross margins are expected to reach about 30% by year end and Model X about 25%. Over time gross margins will likely converge to those of the Model S,” said investment researcher Evercore ISI in a report.
Long-time Tesla proselytizer Adam Jonas of Morgan Stanley liked Tesla’s forecasts for 2016.
“The (financial) outlook was higher than we expected in every key aspect from cash flow to margins and deliveries. Capex, opex and leasing (deferred revenue) activities are also running higher than expected,” Jonas said.
Jonas said Tesla’s fourth quarter showed stronger than expected profitability despite significant manufacturing challenges. The so-called falcon doors on the Model X have been a cause of frustration for Tesla and worry for investors. Tesla’s 2016 outlook addressed major investor concerns, he said.
“Higher levels of spending across the board in the quarter and for 2016, suggests high ambitions to disrupt transport and energy remain intact,” Jonas said.
Global Equities Research (GER) was also reassured.
“Tesla’s fundamentals are strong. We are reiterating over-weight rating on Tesla and maintaining our 12 to 18 months (share) price target of $385,” GER said.
In early trading in the U.S. today, Tesla shares had jumped close to 7%, according to Reuters. On Wednesday Tesla shares fell to $147 before recovering a bit before the close. Tesla shares have dived almost 50% from a peak of $282 in mid-July 2015.
“We are estimating Tesla could deliver 85,000 Model S and Model X (models) in 2016, which is based on the company guidance of average per week production and deliveries of 1,600 to 1,800,” it said.
Evercore ISI said because of Model X problems it had cut its sales projection for 2016 by 12% and operating profit by 20%, but it maintained its target price for the stock of $310.
“However, with Model S margins improving and not deteriorating, as the product ages and Model X margins likely to converge on those of the S in 2017, our 2017 numbers remain unchanged. Hence we make no change to our target price or (Buy) recommendation,” it said.
Not everybody expects success at Tesla, and even investors like Morgan Stanley have pointed out problems. Morgan Stanley recently lowered its long-term target for Tesla’s share price by 26 per cent to $333 because of Model X problems, and worries about Model 3.
Morgan Stanley then cut its annual sales forecast for the Model S, X and 3 to a total of 246,000 by 2020 compared with Tesla’s 500,000 forecast. Model 3 deliveries will only reach 5,000 in 2018, not the planned 30,000, it said.
Berenberg Bank of Germany, maybe because it is close to BMW, Audi, Porsche and Mercedes attempts to match Tesla, started coverage of Tesla early in February and opened with a “sell” recommendation and a one year target share price of $165.
Porsche Mission E
The upcoming Tesla fighters – the Porsche Mission E, Audi Q6 e-tron Quattro SUV and Volkswagen Phaeton battery-only sedan will be released by 2018.
“The German premium brands are investing heavily and have good electric vehicle and autonomous driving technology but they are slow to release, partly to defend profits. We expect news from Mercedes and the BMW (i5) soon, and more competition from Range Rover, Volvo and Japanese manufacturers,” Hull said.