Jeffries’ Philippe Houchois has met with Tesla’s (TSLA) management at the Fremont factory. The analyst called the tour of the plant “an interesting mix of time-travel, state of-the-art and low productivity,” which he says gave him a meaningful scope into improving flow and asset turn for the car-maker.
“Our last visit long pre-dates Model 3 and visiting Fremont was an interesting travel through time. Given the brisk pace, there was no time to take time measurements. Stamping took us back 30 years to a set up probably little changed from the NUMMI days except 3mn automatic die change. Body-In-White automation was impressive with a good sense of flow,” Houchois noted.
Recall, Tesla has introduced a lower priced version ($35,000) of Model 3 in Q4. The company believes the lower price point would enable it to emerge from a niche market and become more mainstream. However, not everyone on the Street is impressed. Because of increased Model 3 production costs, gross margins might be under pressure.
Indeed, Houchois points out that “with production issues now coming under control in the course of Q3, concerns have moved onto demand considering uncertainties about the launch of lower-priced Model 3 versions.” The analyst added, “We assume Model 3 ASPs can remain well above $50k. After a few false dawns, the functionality of Navigate on Autopilot appears better defined in terms of scope and data collection and processing.”
Furthermore, the analyst refers to the company’s balance sheet as being “de-stressed” with aggressive assembly automation no longer on the agenda and a relatively undemanding target of more than 7,000 units per week by the end of 2019. Houchois says management seems to be focusing on de-leveraging. Some notes when it comes to production – Houchois noticed the paint shop seemed to be of high quality, but final assembly did not seem to flow easily, which leaves room for improvement.
Overall, Houchois remains sidelined on TSLA stock, with a Hold rating and price target of $360, which implies a slight downside from current levels. (To watch Houchois’s track record, click here)
It appears the voice of the Street backs Houchois’ sidelined vantage point on the electric car maker. Out of 26 analysts polled by TipRanks in the last 3 months, 9 are bullish, 7 remain sidelined, while 10 are bearish on the stock. With a potential downside of nearly 7%, the stock’s consensus target price stands at $331.70. (See TSLA’s price targets and analyst ratings on TipRanks)