Tesla Model 3 Production Delayed But Investors Unruffled.
“Faith in Mr Musk has taken the company a long way. But eventually, financial and operational realities will carry the day”
Tesla Inc pushed back production targets for the crucial Model 3 again, but bulls and bears retained their opposing views on the company’s future.
And investors still expect Tesla will have to raise more money soon. Others praised its resilience to bad news.
Tesla sold 1,550 Model 3s in the fourth quarter, much lower than expectations, and put back the target of making 5,000 a week to the end of 2018’s first half. Analysts had predicted almost 16,000 sales in the fourth quarter. The previous target for 5,000 a week production was the end of the first quarter.
Tesla shares slipped just over 2% to just over $310 after the official market closed. For a volatile stock like Tesla, that’s a very sanguine reaction.
Long term Tesla critic, The Wall Street Journal Heard on the Street columnist Charely Grant, said positive Tesla investors’ dreams show no signs of turning into reality.
“The bulls should reconsider. The premise of the stock’s sky-high valuation has long been of Tesla eventually dominating the auto industry. That notion has hardly ever seemed more fanciful,” Grant said.
“Meanwhile, Tesla’s cash-burn issues show no sign of resolution, debt is mounting, and competition from rival auto makers is picking up. Tesla’s business depends on raising fresh money from investors, so keeping the share price high is crucial,” Grant said.
Tesla’s stock price this year peaked at $389.61 in early September and has been on the slide since, according to Reuters’ data. The official close Wednesday was $321, but it slipped back to just over $310 in unofficial trading.
Concentrate on Model 3
In a previous column, Grant said Tesla CEO Elon Musk should concentrate in 2018 on building up production of its crucial Model 3, and spend less time musing about possible new products like the semi truck, sports car and pickup truck.
Morgan Stanley analyst and Tesla fan Adam Jonas pushed back his production forecasts for the Model 3, and doesn’t expect the 5,000 a week rate to be reached by the end of 2018, but retains his faith and advised investors to buy Tesla shares if the price falls.
“We continue to view Tesla as a high risk investment. The upside to our $379 price target should be seen from the perspective of elevated risk. While there is a ton of attention around the ramp of Model 3 in early 2018, we continue to believe the greater risk to the stock involves encroachment from tech firms with adjacent data monetization opportunities in the mobility ecosystem,” Jonas said.
Investment researcher Evercore ISI retained its cautious stance on Tesla, saying investors should hold back until Model 3 production issues become clearer. But it cut its Model 3 production projection.
“We believe Model 3 deliveries are more likely to finish the year in the 180,000 to 220,000 range and not the 258,000 which we had previously forecast. Roughly a 23% cut at the mid-point. Are Tesla’s new targets achievable? They are certainly easier. However, we believe visibility remains clouded until Model 3 production is consistently running at a weekly rate in excess of 1,000 units,” Evercore ISI analyst George Galliers said.
Another investment researcher Jefferies, which has an “underperform” rating on Tesla shares, said it still doubts Tesla will ever generate attractive profit margins on the Model 3, even after it ramps up production.
“Tesla pushing back earlier guidance of Q1 production ramp-up is a bigger concern and continues to suggest the company will need more capital,” Jefferies analyst Philippe Houchois said in a report entitled “Blowing Hot and Cold Again”.
“We continue to expect Tesla will need an additional $2.5-$3.0 billion of capital to complete the ramp-up,” Houchois said.
The Financial Times Lex column had a foot in both camps. In a column published late last month Lex said Tesla’s wheels should come off in 2018, as the make-or-break Model 3 misses milestones and investors tire of having to come up with cash. Even if Model 3 deliveries accelerate, it is too late because rival carmakers are about to flood the market with rival electric cars. Then it added “We hope to be wrong”.
After Wednesday’s bad news, Lex reckoned Tesla displayed its most impressive feature – “it is bulletproof” – said the column because the shares showed such a mild reaction.
Hear on the Street’s Grant can’t see any positives.
“Faith in Mr Musk has taken the company a long way. But eventually, financial and operational realities will carry the day,” Grant said.