Market Overview

Jefferies: 5 Factors Protecting Tesla Model 3 Margins

Jefferies: 5 Factors Protecting Tesla Model 3 Margins

Tesla Inc (NASDAQ: TSLA) has managed to hold its post-earnings gains over the last month, and some on the Street think the stock remains undervalued.

The Analyst 

Jefferies analyst Philippe Houchois maintained a Hold rating on Tesla with a $360 price target.

The Thesis

Jefferies assumes Model 3 average selling prices will remain above $50,000, but nonetheless anticipates a decay in metrics.

In the near-term, the following are seen to protect gross margins, Houchois said in a Wednesday note. (See his track record here.)

  • The launch of the lower-range battery and related assembly improvements;
  • Lower labor costs;
  • Component cost savings;
  • Reduced scrap; and
  • Depreciation leverage of about $1,000 per vehicle.

“Tesla expects the erosion of Model 3 ASPs can be moderated through international sales (launches in Europe and China in H1) focused on high mix version and the introduction of leasing offers with attractive residual values,” the analyst said. 

The increasing functionality of Autopilot’s Navigate control is expected to heighten vehicle demand, he said. 

Tesla's comments on store efficiency and the utility of charging stations indicate a low risk of selling, general and administrative expenses rising in the next three quarters, Houchois said. 

Given that competing EV models target the $80,000 consumer range, Jefferies is concerned about the prospects of the Model S and X heading into 2019.

Price Action

Tesla shares were up 0.55 percent at $345.80 at the time of publication Wednesday. 

Related Links:

Musk Admits Tesla Was Close To Collapsing Earlier This Year Amid Model 3 Ramp

Citron Research: Nio Is 'Tesla Deja Vu'

Photo courtesy of Tesla.

Latest Ratings for TSLA

Oct 2019DowngradesMarket OutperformMarket Perform
Sep 2019Initiates Coverage OnBuy
Jul 2019ReiteratesUnderweight

View More Analyst Ratings for TSLA
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Posted-In: Citron Research Jefferies Model 3Analyst Color Short Sellers Price Target Reiteration Analyst Ratings Best of Benzinga


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WENMorgan StanleyMaintains22.0
XGNCantor FitzgeraldInitiates Coverage On18.0
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