Taking Stock Of Tesla Shares After Recent Rally

Oppenheimer believes investors would be confused from the impact of multiple crosswinds on the results of Tesla Motors Inc TSLA. The electric car maker is expected to announce its fourth quarter numbers between February 8 and 13, and analyst Colin Rusch cut his estimates for the quarter.

Rusch cut his fourth-quarter delivery estimate to 22,200 from 24,500, resulting in reduced EPS and revenue numbers. The analyst trimmed fourth-quarter revenue and EPS estimates to $2.075 billion and ($1.24) from prior forecast of $2.237 billion and ($1.04).

Rating

Rusch, who has a Perform rating on the shares, said he would not be surprised by delays in shipments of Model 3 given supply chain complexities and relatively short timeline. Investors, on the other hand, expect Tesla to start shipping Model 3 in mid-2017.

Further Justification

The above comments come as Tesla shares have rallied more than 30 percent since the closing of the SolarCity acquisition and up nearly 20 percent year-to-date (vs. S&P 500 +2.6 percent year-to-date). Shares are expected to rally further in to the Model 3 shipping event anticipated in the third quarter.

“And while we are largely in agreement with that sentiment, we believe the ambition of the platform is much broader with the company working on multiple fronts,” Rusch wrote in a note.

The analyst pointed out various crosswinds impacting Tesla in the form of restructuring SolarCity, working with Panasonic on two factory ramps, development and implementation of autonomous vehicles and car innovation.

Further, Rusch believes manufacturing efficiencies is the long-term driver of profitability. Though Tesla is highlighting manufacturing innovation, the analyst says execution is “extremely challenging.”

Meanwhile, Rusch also highlighted that the company’s relationship with Panasonic will be under significant scrutiny, mainly from bearish investors.

“While ostensibly TSLA has off-loaded battery and solar manufacturing risk to Panasonic, terms of the arrangement are unclear. We understand TSLA has made purchase commitments, but pricing and level of shared risk are unclear,” Rusch continued.

Finally, the analyst views that one of the pervasive issues facing Tesla is the potential financial model after the integration of SolarCity.

At last check, shares of Tesla rose 1.34 percent to $253.98.