Superior Manufacturing, Unique Automation Gives Tesla A Competitive Advantage For The Long Term

After meeting with Tesla Inc TSLA's management team, Baird senior research analyst Ben Kallo sees Tesla in a great position as he reiterated his Outperform rating with a $368 price target.

“The Model 3 production ramp is on track and expects to achieve positive gross margin in Q4:17. Additionally, we think Tesla Energy is underappreciated by some investors and are constructive on the energy storage opportunity headed into 2H:17. We remain buyers with catalysts upcoming,” Kallo noted.

4 Catalysts For Tesla

1. Superior Manufacturing Offers Tesla a Competitive Advantage.

In the long term, Tesla’s product development team should be able to develop factories that enable Tesla “to leverage development capabilities and improve manufacturing efficiency. A focus on design for manufacturability should allow the company to produce cars in a faster and more efficient way over time,” Kallo said.

2. Model 3 is on Track.

Specifically, management noted that it is on track to produce about 250,000 vehicles by the end of 2017, and are expecting positive gross margins on the Model 3 in Q4. Management also highlighted margins could ramp up faster with the Model S or X.

3. Opportunity to Capitalize on Energy Storage.

Kallo sees the energy storage sector of Tesla as underappreciated by investors. “Tesla should be able to gain share in the growing energy storage market, and we are constructive on the storage opportunity in 2H:17,” he said.

4. Staying Ahead of the Competition.

Tesla is currently able to produce battery packs at half the cost compared to its competition according to Kallo. This allows them to stay ahead and drive the automotive industry. Additionally, “Management indicated the company would continue to improve energy density, which should contribute to a smaller battery pack and increased range,” Kallo stated.

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