Tesla and the bull and bear believers

November 30, -0001 Chad Prevost

  (Photo: Shutterstock)

(Photo: Shutterstock)

Some want to believe Tesla will succeed because what they’re trying do is pretty awesome. The constant financial panic about Tesla and the fact that it is leading the biggest revolution in cars in the last 100 years, makes the company the object of unending media fascination. Many startups promise to change the world, but Tesla actually has (or had) a chance to do just that.

Others believe Tesla will fail. They have many different reasons for this. Some haven’t liked Elon Musk and Tesla from the beginning. Others have grown to dislike Tesla because of its government support, or because of the constant missed deadlines and undeserved hype.

Many say the end is near, others profess that if anything Tesla’s value is only going up. To try and make sense of it all, FreightWaves reached out to Stifel’s Michael Baudendistel, Consumer Edge’s Jamie Albertine, and Goldman Sachs’ David Tamberrino. Only the former was available for immediate comment, while the other two have made statements this week.

Baudendistel sees reason for some skepticism and a little for optimism. He has also worked with Albertine and Tamberrino at his office, and the two have polar opposite outlooks on Tesla.

Baudendistel says that in Tesla’s favor is battery prices. For electric vehicles they have come way down over the past year, by like 50%. Why?

“They were coming down by around 14% a year for about 10 years, but then suddenly they hit an inflexion point,” he says. Basically, manufacturing and production ramped up, and so did the capabilities and supply.

“The key story from what I understand is that they have a very good $100,000 car. As for the Semi,” Baudendistel says, “the cost of $180-$200,000 seems unrealistic. Guaranteed to last one million miles? That also sounds dubious and not a warranty aspect.

“With the electric vehicles, I think they’re fine for smaller duty, pickup and delivery stuff, that works better. I do wonder about the Semi. I don’t know that long haul duty is the best for that,” Baudendistel adds. “I almost wonder if they came out with that big announcement to hype things up and get the investors excited.”

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Bullish Belief

Consumer Edge recently hosted meetings with Tesla executives. The analysts, led by Jamie Albertine, remain bullish. Consumer Edge kept its buy rating on Tesla unchanged, with a price target of $385, which would represent 20% upside from last Friday’s close. Even before the meetings, the analysts were not counting on 2,500 Model 3s a week by the end of Q1.

“Given Tesla’s focus on quality, the complexity involved and Tesla’s history achieving production guidance, we think the Street has some cushion relative to current guidance,” and they added that if Tesla achieves the 5,000 goal it will not need to raise additional capital.

Tesla is being prudent by focusing on quality vs. quantity in this early production phase, they argue. “We also believe many investors would view a figure of 2,000 or greater by Q1-end as a positive, as it would indicate significant progress.”

While Tesla hasn’t updated the Model 3 reservation count since August, when it said it had 455,000 reservations, Consumer Edge was also unfazed. “Tesla believes in pent-up demand for the Model 3 that cannot be seen through changes in reservations,” they said.

Tesla said in January it would be making 5,000 Model 3 sedans a week by the end of the Q2. Originally, of course, the company said it would ramp up Model 3 production to 5,000 sedans a week in 2017, and then on to 10,000 a week in 2018. If it misses its latest deadline, the company is still likely to get a pass. Many investors are looking for Tesla to achieve that 5,000-unit production rate sometime in the end of the second half of the year, not necessarily by the end of June (Q2), the Consumer Edge analysts said.

What about the well-publicized recent departures of senior-level executives, including Jon McNeill and Eric Branderiz, Tesla’s former sales and service head and chief accountant?

“Based on our conversations with management, we do not believe there is a serious issue driving these exit decisions and we would caution against reading too much into these headlines at this time,” the analysts said. Tesla will need to replace the role of their services at some point, they said.

Tesla shares have gained 23% in the past 12 months, which compares with 16% gains for the S&P 500 index in the same period.

Bearish Belief

By contrast, based upon the same "below expectations Model 3 deliveries" Goldman analyst David Tamberrino reaffirmed his sell rating for Tesla shares.

"We believe the company is tracking below its 2018 Model S/X guidance of approximately 100,000 units (an implied 25,000 per quarter). Further, while monthly Model 3 deliveries are showing sequential improvement, we estimate that they will fall well short of consensus expectations," Tamberrino wrote in a note to clients Monday.

"We continue to expect a slow ramp for the Model 3, and maintain our Sell rating as we expect shares to de-rate as targets are potentially pushed further out."

Tesla shares declined over 3 percent for the week so far. Tamberrino reaffirmed his Q1 Model 3 delivery estimate of 7,000 versus the Wall Street average of 13,800 after his analysis of vehicle registration data.

"We maintain that the Model 3 ramp will be below company expectations (albeit improved from Model S/X ramps), and note that incremental production issues may continue to appear as the company looks to ramp mass manufacturing along the chassis, body, and final assembly lines," he wrote.

The analyst reiterated his $205 six-month price target for Telsa shares, representing 36 percent downside to last Friday's close.

So, what should investors and Tesla believers do, jump on or jump off? Seems it doesn't just depend on the latest production rate.

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