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KeyBanc: What Bulls, Bears Like In Tesla's Q2

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KeyBanc: What Bulls, Bears Like In Tesla's Q2

Tesla Inc (NASDAQ: TSLA) CEO Elon Musk deserves credit for restoring some faith and credibility in the company, but not enough for a bearish turn on the stock, KeyBanc Capital Markets said after the automaker's second-quarter print

The Analyst

KeyBanc's Brad Erickson maintains a Sector Weight rating on Tesla with no assigned price target.

The Thesis

Tesla's bulls have six key points to cheer, Erickson said in a research report. (See the analyst's track record here.)

They are:

  • Tesla's reiteration of being net income positive as of the third quarter.
  • Model 3 production continues to ramp meaningfully.
  • Tesla should hit its gross margin target earlier than expected — by the second quarter of 2019 the latest.
  • Model 3 orders hit an inflection point a few weeks ago.
  • Chinese production should come online in three years and be financed by Chinese banks.
  • Musk apologized multiple times for last quarter's conference call blunders.

Bears are likely to emphasize the following, the analyst said:

  • The company's cash burn of $740 million in the quarter brings its total cash burn for the first half of 2018 to $1.79 billion.
  • If Model 3 average selling prices move lower from cheaper versions, the company may have trouble hitting its gross margin guidance.
  • Musk's 2020 guidance of selling 1 million cars may be overly optimistic and needs to be reflected in valuation models.

Overall, the near-term setup for Tesla skews positive given supply constraints, optimism from China and a potential Model Y announcement in 2019, Erickson said. On the other hand, the long-term setup remains less positive as Tesla's assumed innovative superiority is "well priced-in" at current levels and margins, growth and multiples will normalize over time, he said. 

Price Action

Tesla shares were trading up 9.69 percent at $329.99 premarket Thursday. 

Related Links:

Goldman, UBS Remain Tesla Bears Ahead Of Q2 Print, See Capital Raise As Likely

Needham Downgrades Tesla, Says Model 3 Refunds Are Outpacing Deposits

Photo by Brett Hershman. 

Latest Ratings for TSLA

DateFirmActionFromTo
Apr 2021Canaccord GenuityMaintainsBuy
Apr 2021Credit SuisseReiteratesNeutral
Apr 2021Goldman SachsMaintainsBuy

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

 

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