Tesla Motors Inc TSLA is scheduled to report its 1Q16 earnings on May 3, after the close. Deutsche Bank’s Rod Lache believes that the focus would be on the trajectory of the company’s business plan. The analyst maintained a Hold rating for Tesla, with a price target of $280.
Analyst Rod Lache pointed out that Tesla had already announced the delivery of 14,820 vehicles in 1Q, missing their target of 16,000 units. So, this will not be a surprise during the earnings call. The company is likely to focus on its efforts to overcome Model X manufacturing issues.
“We hope to get an update on demand, costs, and the trajectory to FCF breakeven (previously est’d at 1,600-1,800/week, which should be imminently achievable),” Lache wrote.
The most important aspect would be related to the business plan, and whether there is any change in it, the analyst commented. Focus is likely to be on what to expect regarding volumes, opex, and capex over the next few years, and where this would take Tesla by 2020. Lache believes that the company could easily achieve 500k units, a low-double-digit EBIT margin, and an EPS of $22 in the 2020 timeframe.
There have been certain developments to suggest that Tesla may actually beat these forecasts. The overwhelming demand for Model 3 has “led the company to “re-think” expansion plans,” the Deutsche Bank report stated.
Tesla has already spent $3.4bn capex. Lache said his base case assumes an additional $1.5bn per year through 2020 to get to 500k units. If the company plans for 750k units, an additional $2bn would be invested. In case an additional $2bn equity is sold to fund this plan, the EPS estimate for 2020 would rise $22 to ~$27.
“While this may seem aspirational over a 4yr timeframe, we believe that Tesla would still have plenty of runway for growth even beyond reaching 750k units,” Lache said.
Autonomous On Demand Vehicles
Autonomous vehicles are expected to hit the road by 2020. Even if Tesla sells 25,000 of these vehicles per year, and places them into On Demand Service, this business could generate nearly $1.2 billion annual recurring EBIT within three years, which translates to an EPS of $5, Lache added.
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