Top25-SA-Banner

Tech Guru Gene Munster Says Tesla (TSLA) Profitability in Reach by Q3; Here’s Why

Loup Ventures' Gene Munster is bullish on Tesla's massive reorganization, which encouragingly will not throw Model 3 production off course.


Yesterday, Tesla (NASDAQ:TSLA) dished new details on its already discussed vision for reorganization. Wall Street’s resident guru of the tech-verse Gene Munster of venture capital firm Loup Ventures commends the restructuring as a tangible move forward in achieving sustainability down the line. Notably, while Munster had been anticipating a 5% cut in workforce, Tesla intends to scale back its 37,000 people to around 33,500- a marked 9% reduction.

If Munster is “reading between the lines” here, he now anticipates stronger odds for the electric car giant to at last turn a profit in the third quarter- which is precisely what CEO Elon Musk bet just two months ago. For context, Musk had tweeted in April that there would be no reason to fear needing a capital raise, as he forecasts his company to become profitable and hit cash flow in the third and fourth quarter of this year.

Munster continues to be a steadfast bull behind the Tesla name, cheering: “We remain positive on the Tesla story given our belief that Model 3 will scale, and the company will achieve its mission of accelerating the world’s transition to sustainable energy.”

For those fearing that this workforce chop will throw a wrench into a narrative of challenged Model 3 production, Munster is unfazed: “Elon Musk addressed the elephant in the room in his letter to employees, clarifying that the cuts will not impact Model 3 production. This, of course, is the most important near-term metric to the story, even more so than cash.”

The research analyst looks ahead for a one-time charge of $130 to $150 million divided between cash and stock. Yet, on an even more pressing note, Munster calls for $320 million yearly and roughly $80 million in operating expense savings per quarter moving ahead. Munster ran the numbers by pinpointing an average salary of $100,000 coupled with a 6-quarter average tenure. When eyeing the bigger picture of Tesla’s lofty rate of burning through cash, though the analyst understands $80 million per quarter “may not sound like enough to have an impact,” keep in mind that “the next several months may decide the fate of the company.” Therefore, to put it bluntly, “every dollar counts.”

Profitability is now within reach, thanks to this reorganization, wagers Munster. The analyst draws note to TSLA’s prior commentary, setting a goal to become GAAP profitable in the back half of the year. Munster sees Wall Street overall angling for GAAP profitably in the beginning of next year. While “conventional wisdom” might steer against trusting Tesla’s ambitious leader’s often tall order goals with timing, with such a massive reorganization at play, one intent is crystal “clear:” Musk is “serious about reaching profitability.”

Munster surmises, “In rare form, Musk directly aligns the company’s mission with its ability to make money, saying, ‘we will never achieve [our] mission unless we eventually demonstrate that we can be sustainably profitable. That is a valid and fair criticism of Tesla’s history to date.’ We believe this reorg will bring Tesla one step closer to profitability – and to achieving their mission.”

TipRanks exhibits looming caution edging around TSLA shares, with a predominantly apprehensive analyst consensus. Out of 24 analysts polled in the last 3 months, 7 are bullish on TSLA stock, 10 remain sidelined, while 7 are bearish on the stock. With a return potential of nearly 12%, the stock’s consensus target price stands at $302.67.