Wedbush Says Tesla Poised For Q4 Delivery Upside On Model 3 Demand, European Strength

Tesla Inc TSLA was among the best-performing stocks of 2019 amid optimistic sales expectations.

With the company scheduled to release fourth-quarter production and deliveries this week, Wedbush previewed the numbers and the electric vehicle maker's China opportunity.

The Tesla Analyst

Wedbush analyst Daniel Ives maintained a Neutral rating on Tesla with a $370 price target. 

The Tesla Thesis

The recent rally in Tesla shares has to do with not only short covering but also with an improvement in underlying fundamentals and optimism that "the story has grown markedly from the dark days seen earlier in 2019," Ives said in a Thursday note.

The Street is modeling for deliveries of 106,000, the analyst said.

Wedbush sees upside to its Model 3 delivery estimate of 85,000 for the quarter.

U.S. consumer demand for Model 3 vehicles and European strength should drive upside in the fourth quarter, helping the company comfortably beat its 2019 delivery guidance of 360,000-400,000 units, an estimated 45-55% year-over-year increase, he said. 

China is expected to be the major growth driver for Tesla, as the company's flagship Shanghai Giga 3 buildout and healthy consumer demand in the region should serve as major catalysts in 2020 and beyond, Ives said. 

"With the first Chinese made Model 3s delivered over the past week and Giga 3 on pace to produce over 1,000 cars per week, the bull/bear debate will center around ramping production and demand to the 100k/150k level annually in China and how quick this dynamic will ramp."

If Tesla is able to sustain this level of profitability and demand going forward, especially in Europe and China, then the stock will see further growth and multiple expansion, according to Wedbush.

Tesla has to show strong cash flow and profitability in the coming years to undertake CEO Elon Musk's myriad initiatives such as robotaxis, Giga 3, European buildout and an insurance initiative, the analyst said. 

"While we are still taking a wait and see approach to see how sustainable this level of demand/profitability is going forward, based on recent data points out of Europe/China we continue to move one step closer to believing this Tesla turnaround story is real."

China is the major swing factor and is ultimately worth between $75 and $100 per share, Ives said. 

Tesla Price Action

Tesla shares were trading 1.3% higher at $423.77 at the time of publication Thursday. 

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Photo courtesy of Tesla.