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Tesla (TSLA): Guggenheim Dives In on Ticking Tax Credit Clock

Guggenheim's Rob Cihra continues to take the gamble on TSLA- even if the clock starts on U.S.


Tesla (NASDAQ:TSLA) could be nearing its 200,000th consecutively shipped electric vehicle in the U.S., wagers Guggenheim analyst Rob Cihra. Meeting this target threshold poses an “ironic” obstacle to the company firing up production and sales, as doing so sets off the clock on U.S. Federal Tax Credits for its customers beginning to dip two quarters down the line. Even so, the analyst believes this will result in “more noise than real impact on demand” longer-term.

Therefore, the analyst reiterates a Buy rating on TSLA stock with a $430 price target, which implies a close to 25% upside from current levels. (To watch Cihra’s track record, click here)

Though the analyst sees a “sunset clock” ticking on U.S. Federal Tax Credits for Tesla’s customers, he explains, “while that could have near-term implications for a) quarter-end US vs. Int’l deliveries and b) demand noise 2 quarters out (i.e., starting to lower incentives through 2019E), we do NOT expect lasting demand implications since we do not believe people are buying a Tesla EV for the tax credit but rather because they want to buy a Tesla EV.”

As Cihra addressed last month, he has rising confidence in the electric car giant to at last lift its Model 3 production to achieve its 5,000 per week target goal. Cihra’s bet: in achieving this target, Tesla could then begin to generate substantial positive volume leverage in the back half of the year on back of a sizable fixed cost structure that has been in the works. Accordingly, the analyst continues to project the giant converting its losses to profits in the back half of 2018 with a then opportunity of a “PROFITABLE Tesla setting up a meaningfully more positive stock narrative.”

In the second quarter, Cihra anticipates Tesla has the odds to reach 204,000 cumulative U.S. shipments. Ultimately, “we believe that if it is that close it would purposely HOLD BACK deliveries in the US and rather favor international shipments late in the quarter to delay crossing its 200K mark in the US until the first day of NEXT quarter (Q3) […] Backing that up, our own store checks have confirmed a rapid ramp in Model 3 deliveries in Canada over just the past 1-2 weeks,” concludes the analyst.

TipRanks suggests wariness is snaking its way through the Street when it comes to the challenged electric auto empire’s market opportunity. Out of 24 analysts polled in the last 3 months, the battleground is split between the bulls and the bears- 7 rate a Buy on TSLA stock, 10 maintain a Hold, while 7 issue a Sell. The 12-month average price target falls low at $302.67, marking 12% in loss potential from where the stock is currently trading.