Tesla Inc May Be at Risk for More Bottlenecks in Production, Joseph Spak Warns

RBC's Joseph Spak cuts his estimates on Tesla following 4Q17 production/delivery results and on the heels of last week's Detroit Auto Show.


RBC Capital analyst Joseph Spak is out with a new research report on Tesla Inc (NASDAQ:TSLA) from the sidelines following “additional color” gained at last week’s Detroit Auto Show.

On one hand, Spak is pleased to see battery back assembly bottleneck issues that had badgered the electric car empire’s production last year seem to be resolved. On the other hand, the analyst cannot help posing the hesitant query: what if further bottlenecks spring up? As far as the analyst assesses the picture, “likely candidates” for bottlenecks point to body welding as well as final assembly.

Deeming it simply “too early to know if bottlenecks in other parts of the line may emerge,” the analyst reiterates a Sector Perform rating on TSLA stock with a $380 price target, which implies a close to 9% upside from current levels. (To watch Spak’s track record, click here)

“We are adjusting our model to reflect 4Q17 production and delivery numbers as well as the extra color garnered at the Detroit Auto Show,” writes Spak.

The TSLA team posted 15,200 in Model S deliveries, 13,120 in Model X deliveries, and 1,550 Model 3 deliveries during its fourth quarter of last year. Positively, the S/X deliveries outclassed Spak’s expectations, as the analyst had called for 14,000 in Model S deliveries and 13,000 in Model X deliveries. However, Model 3 deliveries underwhelmed against Spak’s projection of 3,300. In reaction, the analyst is taking his fourth quarter EPS forecast from -$3.34 to $3.375 while scaling down his EPS projection from -$7.00 to -$7.50.

Ultimately, “We believe management’s revised Model 3 production ramp color correlates to ~200k units of annual production. RBC remains below at 169k units. Even at our lower level of production, we don’t necessarily believe TSLA will be required to raise capital as we have them hovering above the $1bn in cash (though that always seemed like a low minimum cash figure). However, they don’t have a ton of wiggle room in our view so raising capital regardless for risk mitigation may be prudent,” Spak contends.

TipRanks showcases a Wall Street opinion that backs Spak’s cautious sentiment on the electric car empire, although perhaps even less optimistic than the analyst. In a battle of the bulls and the bears, analyst consensus tilts towards the bearish camp when it comes to Tesla’s opportunity. Based on 24 analysts polled in the last 3 months, 6 rate a Buy on Tesla stock, 9 maintain a Hold, while 9 issue a Sell on the stock. The 12-month average price target of $312.72 implies nearly 11% in downside potential.

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