Tesla Is 'Burning Rubber And Burning Cash'

Tesla Inc TSLA is continuing to disrupt the traditional automotive market.

“While we are bullish about Tesla's long-term potential, we have several near-term concerns,” Bernstein’s Daniel Chen said in a report.

Initiating coverage of Tesla with a Market Perform rating and a price target of $250, Chen mentioned that shares were “fairly valued at current levels.”

Tesla Advantages

Chen mentioned three key advantages that the company has:

• A lead in battery technology cost
• Unparalleled consumer awareness and brand
• Vertical integration “that is not only brand reinforcing, but creates material cost savings in distribution”

These advantages combined indicate a profitability advantage of more than 800 basis points in the long term, versus traditional OEMs [original equipment manufacturers], the analyst commented.

Related Link: Apple And Tesla: A Fairy Tale?

Near-Term Concerns

Among the several near-term concerns around Tesla, Chen mentioned the two most notable ones.

Gross margin

When capital expenditure associated with Model 3 ramps up

Overall customer experience

This doesn't seem to be strong right now and could get worse as Tesla migrates to selling to a more mass-market consumer. “A poor ramp and customer experience on Model 3 could not only impact Tesla's near-term financials, but undermine the franchise longer-term,” the analyst stated.