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Tesla Bears Still Show Their Fangs After Q2 Beat

Tesla Bears Still Show Their Fangs After Q2 Beat

Tesla Inc (NASDAQ: TSLA) wowed the Street with its second-quarter results, as evident by the strong rally by the shares in reaction to the results.

However, the results did nothing to change the view of Tesla bears such as Goldman Sachs, which maintained its Sell rating on the company.

Reviewing the Q2 results, Goldman noted that Tesla reported adjusted EBITDA of $264 million, exceeding its estimate as well as the consensus. Auto gross margin of 25 percent exceeded the firm's estimate of 24.3 percent but trailed the consensus estimate of 25.3 percent.

Further, operating expenditure was better than Goldman's forecast.

Analysts David Tamberrino, Tim O'Brien and Mariel Kennedy indicated that the company allayed some fears of slowing Model 3/Model X demand, citing strong July orders. The analysts also noted that customer deposits saw only a modest sequential drop.

See also: 10 Questions (And Answers) About Tesla's Model 3

Goldman expects cash burn to intensify in the second half of 2017 and noted that the company's auto gross margin forecast of sub-20 percent for the third quarter was directionally in line with its forecast of 16 percent.

The firm now thinks Tesla needs to raise capital in the first quarter of 2018 compared to its earlier expectations of second quarter. Given the cautious commentary of the company regarding the timing of the ramp in the second half, the firm said it continues to see downside risk to Model 3 production.

Goldman attributed the positive reaction in stock price to better-than-expected auto gross margin, operating expenditure control, continued reiteration of production targets and sequentially improving order rates for Model S/Model X.

"However, we remain Sell rated as we see downside potential to the Model 3 launch curve, which we expect will likely drive disappointing Auto gross margins, and further cash burn," the firm said, explaining its stance on the stock.

"Further, we believe Model 3 customer price elasticity will be tested."

With better operating expenditure control, the firm said its 2017–2021 adjusted EBITDA estimates would rise an average of 20 percent. Accordingly, the firm's price target was increased from $180 to $200.

At last check, Tesla shares were advancing 7.13 percent to $349.14.


Image Credit: By User:Jusdafax (Own work) [CC BY-SA 3.0 (], via Wikimedia Commons

Latest Ratings for TSLA

Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Piper SandlerMaintainsOverweight
Jan 2021Deutsche BankMaintainsBuy

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