Gene Munster Bets Tesla Inc (TSLA) Boasts the Best Upside in Large Cap Tech Universe Over the Next 5 Years

Loup Ventures sets confident long-term expectations ahead of tonight's TSLA Q3 results.


Tesla Inc (NASDAQ:TSLA) shares were on a nearly 4% upturn yesterday in anticipation of this evening’s third quarter earnings showcase, with all Street-wise investors and analysts wondering just how the electric car giant’s volatile back half of 2017 will move next.

Over the summer, Tesla endured a massive hit after revealing weak second quarter deliveries, with some analysts questioning whether the giant could achieve Model 3 production gargets down the line. The TSLA team cried “bottleneck” and assured investors that these manufacturing challenges would be addressed in the short-term.

Meanwhile, CEO Elon Musk trumpeted his upcoming Model 3 would be able to one day foster yearly demand to the tune of 700,000 units. Yet, for now, the Model 3 ramp has had a ramp more sluggish than initially predicted and the question for some will be whether to invest in the pullback should the print prove rocky.

Gene Munster – offering a tech perspective from his research-driven, venture capital firm Loup Ventures – believes Tesla will pose a lot of questions, from whether the Model 3 ramp is “realistic” to when to expect profitability to hit. In the grand scheme, the analyst wagers this tech player is a meaningful investment for the long term: “We believe the TSLA story has the most upside in large cap tech over the next 5 years.”

So far, “There is no cannibalization yet of Model X and S from Model 3,” as Munster notes, “A second part of the October announcement was strong demand for Model X and S, which is trending inline with Street expectations of ~100k Model S and X units for 2017.”

Yet, this long-term winner will not be without challenges, as the analyst pinpoints, “One downside of Sep-17 results; production outlook chips away at investor confidence in the Model 3 ramp over the next year.”

One key opportunity glimmers internationally for the electric car giant. “China is an emerging opportunity, with the government’s EV goals,” asserts the analyst.

Notably, Tesla’s most recent update on Model 3 net reservations from three months ago had reached 455,000, and for the fourth quarter, Munster projects Tesla to land at 5,6000 deliveries, less than consensus at roughly 7,000 deliveries. Glancing into next year, the analyst anticipates the Street is going to angle for 150,000 to 175,000 vehicles in Model 3 production.

Looking forward, Munster sees the whole nine yards when it comes to Tesla, anticipating some short-term stumbles along the way to long-term rewards, revving on back of the Model 3’s potential: “While we believe Model 3 production will largely be a guessing game over the next few quarters, and will produce future disappointments, it’s important to note by now we believe Tesla has close to 475-500k net reservations for the Model 3, and we remain confident that Model 3’s value will stoke demand for the next several years.”

Musk’s brainchild has analysts across the financial-verse running hot and cold, wavering on whether this tech stock is worth the gamble. TipRanks analytics exhibit TSLA as a Hold. Out of 22 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 8 remain sidelined, and 9 are bearish on the stock. With a loss potential of 8%, the stock’s consensus target price stands at $304.47.