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Tesla's Plant Shutdowns, Model 3 Prospects, Q1 Earnings: What Analysts Are Saying

Tesla's Plant Shutdowns, Model 3 Prospects, Q1 Earnings: What Analysts Are Saying

When Tesla Inc (NASDAQ: TSLA) announced the first of two temporary shutdowns at the Fremont and Gigafactory 1 plants this week, the market braced for another quarterly Model 3 production miss.

CEO Elon Musk soon clarified the intention of the shutdown strategy: a quarter-end production rate of 6,000 units per week. The news turned a 2.7-percent dip in share price to a 3.2-percent pop.

Here’s where analysts stand on the sensitive stock ahead of Tesla's upcoming earnings report:  

Where The Model 3 Stands

At least one analyst was encouraged by Musk’s updates — particularly a reported 10-percent increase in Model 3 production over the last three weeks — and an outlined strategy to accelerate rollouts.

“This makes us more confident in Tesla’s ability to ramp Model 3 production to a level that will satisfy investors in the Jun-18 quarter,” Loup Ventures managing partner Gene Munster said in a note.

Morgan Stanley was less optimistic.

“No investor that we have spoken to expects Model 3 production of 5,000/week by the end of [the second quarter],” analyst Adam Jonas said in a note. “We don't expect a 5,000/week run-rate to be achieved before [the late fourth quarter]."

KeyBanc Capital Markets remains equally unconvinced that Tesla will meet quarter-end targets, although the research firm said independent channel checks point to solid Model 3 reservations and a forecast of 20,000 to 25,000 Model 3 deliveries in Q2. 

The Balance Sheet

Apart from 400 new hires to sustain 24/7 Fremont operations, Musk said he'll be tightening the budget and requiring explicit approval for any purchases above $1 million over the next 12 months. His finance team will also scrutinize all expenditures and cut “everything that doesn’t have a strong value justification.”

Tesla could preserve $1 billion to $1.5 billion in cash by ramping Model 3 production, accelerating electric vehicle credit sales or throttling capex on the two pending Model 3 lines, according to KeyBanc. 

“We are not applauding these strategies, but rather pointing out that imminent insolvency is unlikely,” analyst Brad Erickson said in a note. 

Morgan Stanley forecast a $2.5-billion equity raise in the third quarter.

The Bigger Story

Tesla also has the option to expand its resources through deeper SpaceX integration, according to Morgan Stanley. 

“We see the future of Tesla and SpaceX as potentially further intertwined, driven by technological, strategic and financial factors,” Jonas said. The chance of a combination of the two companies is "substantially above zero," he said. 

Tesla's other existing properties and business lines are seen to lend strategic value “potentially far in excess of its gross debt balance,” the analyst said. 

Loup Ventures' Munster echoed this perspective and said he expects investors to see continued value in the firm’s various growth opportunities, including renewable energy production and storage.

‘Too Big To Fail’

Notably, as a large and growing employer in an industry seen to support as many as seven extra-industry jobs per one auto job, Tesla may have embedded itself deep enough in the U.S. economy to ensure its endurance.

“Tesla may be more on the ‘too big to fail’ spectrum than the market realizes,” said Morgan Stanley's Jonas, who predicts Tesla will add 50,000 full-time employees by 2020.

Related Links:

Study: Tesla The Most Trusted Company In Autonomous Development Race, Despite Crash Investigations

Bernstein: Tesla Model 3 Margins, Build Quality 'Are The Key Investor Controversies'

Photo courtesy of Tesla. 

Latest Ratings for TSLA

Mar 2020Piper SandlerMaintainsOverweight
Mar 2020Morgan StanleyMaintainsEqual-Weight
Mar 2020Argus ResearchDowngradesBuyHold

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