Erickson: Tesla's Model X Production Issues Paint Volatile Future For Model 3

Tesla Motors Inc TSLA reported lower-than-expected deliveries for Q1, due to parts shortage for Model X from suppliers.

Pacific Crest’s Brad Erickson maintained a Sector Weight rating, with a fair value of $190.

Q1 Deliveries

Tesla Motors reported its Model S deliveries for Q1 marginally ahead of the estimate, while Model X missed the estimate.

The company stated that meaningful shortages of six out of a total of 8,000 parts led to the shortfall and that the issue had largely been corrected, production run rates rising to 750 per week by the last week of March.

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“While the shortfall appears one-time in nature, it highlights the difficulty of ramping a new car, which could carry risk to delivering the Model 3 on time and within budget in the future,” Erickson mentioned.

Tesla Motors reaffirmed its FY16 delivery guidance of 80,000–90,000 cars.

Model X Issues

Erickson pointed out that the latest checks suggested that Model X conversion rates were likely to be tracking below plan, driven at least partly by the lack of showroom models.

However, the analyst also noted that overall demand and orders for Model X appeared to be soft, which was a cause for concern.

“While we'd expect another positive Model 3 reservation update by Wednesday from the CEO, we continue to struggle with the fundamental upside case for TSLA given its recent rally,” Erickson added.