There aren’t many days where Tesla (NASDAQ:TSLA) isn’t in the headlines. Last week, the electric car giant reported Q2 deliveries which were >8k units short of expectations. More pertinent to the equity story, Tesla managed to exceed its 5k units per week production run-rate for Model 3 (5,031).
Barclays analyst Brian Johnson points out that while Tesla is ramping production, it hasn’t been easy and potentially at the expense of gross margin.
The analyst opined, “Give Tesla its due – it has managed to ramp production, and while we don’t think 5k/week is sustainable for a full quarter in 3Q or 4Q, it should continue to ramp – we forecast Model 3 production of 43k and 52k in 3Q and 4Q, respectively, up from 29k in 2Q. For the blue-pillers (aka uberbulls), this is important as it demonstrates the trajectory of datapoints is positive. However, some red-pill (aka more realistic) perspective is necessary as well. It’s clear that production remains a challenge for Tesla – to the point that it had to install a temporary line to reach 5k last week. With production likely to remain a challenge for Tesla even as it ramps higher, we suspect there may be some headwinds to gross margin – potentially forcing Tesla to drive mix as richly as possible to meet its 20% Model 3 gross margin target at the end of 2018.”
What’s next for the stock? “We expect the swing down to continue until prior to earnings, but then would be alert for a ‘bear trap’ in the earnings announcement (perhaps announcement on China or Model Y?) that could restore upward momentum.”
Net net, Johnson reiterates an Underweight rating on Tesla shares, with a price target of $210, which reflects a potential downside of 35% from last closing price. (To watch Johnson’s track record, click here)
Indeed, if you want to bet on the autonomous car industry there are much safer stocks out there than Tesla. For example, Tesla has a Hold analyst consensus rating on TipRanks. And the risky nature of this stock is highlighted by the fact that the $301.35 average analyst price target stands at a downside of nearly 7% from the current share price.