In its review of Tesla Inc TSLA's second-quarter earnings and its call, Deutsche Bank highlighted the big picture for the company and also presented the takeaways from the call.
Summarizing the results, analysts Rod Lache and Mike Levin noted that the company reported second-quarter automotive revenues, gross margin and EBITDA of $2.3 billion, 25 percent and $264 million, respectively. The company burnt $1 billion in cash, the analysts said.
This compares to the $1.36 billion cash burn the analysts estimated, with the difference accounted for largely by capital expenditure being pushed into the second half.
Deutsche Bank's key takeaways from the call included:
Management Confident In Production Target
The firm noted that the company targets production of 1,500 Model 3 units in the third quarter and 5,000 units per week at some point in the fourth quarter and 10,000 per week by late 2017. The firm termed the target as significantly higher than its expectations.
Nevertheless, the firm noted that the management sounded very confident in its level of preparedness or ability to achieve production targets.
See also: 10 Questions (And Answers) About Tesla's Model 3Comfortable With Margin Target
Deutsche Bank noted the management's confidence in the company's ability to ramp to a 25-percent gross margin on Model 3, the same as for Model S currently, within a few weeks of reaching 5,000 units per week. This, the firm noted, is well ahead of its forecast for 16 percent gross margin in 2018.
"The variance appears to be a function of lower costs (due to Model 3's simplified design) and higher projected ASP's (as we noted on 7/31, pricing for Model 3 suggests upside vs. our $53,000 ASP assumption; upscale AWD versions could easily exceed $60,000)," the firm explained.
The firm clarified that a 21-percent gross margin would add $900 million to its 2018 EBIT estimate.
As such, the firm sees a combination of higher margins and a faster production ramp to have significant positive implications for earnings and cash flow.
Demand For Model 3 Far From Worrisome
While noting that Tesla currently has 455,000 net reservations for Model 3 vehicle, the firm noted that the company has been receiving 1,800 net new orders per day over the past few days following the Model 3 launch. The management sounded upbeat about generating additional orders with minimal marketing efforts, the firm said.
No Cannibalization Seen
The firm pointed to the company's assertion that the pace of orders for Model S and Model X accelerated by 15 percent in July compared to the second0quarter average, with acceleration in deliveries expected in the second half of the year from the first half.
Deutsche Bank has a Hold rating and a $240 price target on the shares of Tesla.
At time of publication, shares of Tesla were up 6.38 percent at $346.70.
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