Tesla (TSLA) has recently reduced the prices of its Model X and Model S vehicles sold in China, after the Chinese authorities suspended additional tariffs on U.S.-manufactured cars for three months starting tomorrow.
Um comments on the impact of the temporary suspension of tariff for TSLA, saying it’s positive news: “We believe tariffs had some impact on Tesla with China revenue down $154.3m (-27%) y/y in Q3. We believe the temporary lift of the tariff could help drive some China sales in Q1. If a trade agreement is ultimately reached, this should help Model 3 sales when the company starts shipping, which we expect will occur in 2019. Additionally, if Tesla is able to get general assembly ready by 2H19 in Shanghai, this should also help to lower costs somewhat. We continue to believe demand in Q4 will be driven by the US market from pent up demand ahead of subsidy reductions and demand in 1H 2019 by shipments internationally.”
In addition to the tariff news, Tesla sold $837 million worth of non-recourse auto-lease bonds Friday, Dec. 14, with these bonds being tied to the creditworthiness of Tesla’s Model S/X. Typically the creditworthiness of these bonds are high since the average selling prices associated with TSLA’s higher end cars are typically higher as well.
Moving forward, the analyst says Tesla’s auto bond issue will actually improve the company’s liquidity and better TSLA’s balance sheet going into 2019, as the company will use its $920 million convertible bond that is coming due on the 1st of March. That being said, Um expresses his bullish sentiment over the company’s near future: “Tesla previously sent notices to convert holders that it would use half cash and half shares to redeem the converts if Tesla’s share price was above the strike price, which we expect will be funded with the bond issue. Nonetheless, we believe the use of cash despite the raise shows some level of confidence in its ability to generate cash flows,” Um concludes.
Tesla stock continues to be a source of disagreement for analysts. TipRanks data shows out of 27 Wall Street analysts who focus on the electric car giant, 10 are bullish, 8 sidelined and 9 bearish. The consensus price target of $337.21 shows a potential upside of just about 12%. (See TSLA’s price targets and analyst ratings on TipRanks)