Pacific Crest Views Tesla Warranty As Only A Minor Headwind

In a note released Wednesday, Pacific Crest commented on the recent drive-train warranty issues at Tesla TSLA.

The firm estimated the additional warranty costs will effect gross margins by roughly 30 basis points and estimate a negative $0.10 impact on third quarter earnings and $0.03 negative impact on fourth quarter earnings.

Their full year estimates are lowered, with the new estimates below:

• 2014: lowered from $1.30 to $1.17
• 2015: lowered from $3.18 to $3.08
• 2016: lowered from $7.99 to $7.80

In the note, Pacific Crest also laid out their case, along with a bull and bear case:

Pacific Crest case

Our price target of $316 is based on 4x EV to our 2016 revenue estimate of $11.40 billion. We estimate Tesla's three-year revenue CAGR at 66%, whereas the comparable automotive group trades at 0.9x EV to 2016 revenue on a three-year CAGR of 4.6% over the same period. Our forecast assumptions include:

• Persistent strong demand and the successful launch of the Model X, driving 2016 deliveries of 115,000 with average selling prices (ASPs) of $103,000.
• Model S/X gross margins just above 30% in 2016.
• Leased vehicles hitting roughly 6% of total volumes over time

Bull case

$436 based on 5x EV to upside to our 2016 revenue estimate of $11.40 billion.
Production and demand outperform over the next 12 months, driving the company to push new capacity coming online higher, which subsequently drives 122,000 deliveries in 2016 on ASPs of roughly $108,000.
Model S/X gross margins exceed 30% in 2016.

Bear case

$132 based on 2x EV to meaningful downside to our 2016 revenue estimate of $11.40 billion.
Production and demand lag forecasts over the next 12 months, allowing for only 100,000 deliveries in 2016 on ASPs of $98,000.
Model S/X gross margins peak in the high-20% range in 2016

Shares of Tesla are trading relatively unchanged at $262.00.