Tesla's Issues Are Deeper Than They Appear

Tesla Motors Inc TSLA delivered 14,370 vehicles in 2Q16, attributing the shortfall to the guidance of 17,000 deliveries to in-transit vehicles.

Barclays’ Brian A. Johnson maintains an Underweight rating on the company, with a price target of $165.

Ongoing Issues

Johnson believes the delivery miss highlights two ongoing issues at the company.

Firstly, pointing to production issues, the analyst stated, “While in-transit vehicles played some role in the miss, we think lower-than-guided production also played a role, further reinforcing our skepticism around whether Tesla can meet its lofty volume targets for Model 3.”

Related Link: Deutsche Questions Whether Tesla Has Overcome Production Challenges

Secondly, Johnson expressed concern regarding the decline in demand for Model S, which is difficult to attribute to production issues.

The analyst noted that 2Q delivered declined 21 percent sequentially and 18 percent year-on-year, representing lagging demand for the aging Model S.

The analyst also believes that this “puts into context Tesla's decision to launch the lower priced 60kWh version of the Model S.”

Stock Performance

On the other hand, Johnson also pointed out that the stock performance does not seem to have been impacted by the delivery miss or the ongoing debate regarding Auto pilot and the SolarCity Corp SCTY acquisition offer.

“We would expect the stock to trade weakly as consensus drifts down off the delivery numbers — potentially setting up room for a 2Q EPS beat from ZEV credits,” the analyst stated.