Think Twice Before You Buy Tesla (TSLA) Stock, Analyst Says

In the beginning of April, electric car giant Tesla (TSLA) is expected to release 1Q19 unit delivery numbers, an important metric gauging the company’s production ability and demand. As of mid-March, senior vice president Sanjay Shah said the company needed to deliver 30,000 more cars by the end of the month, which is about one-third the number of cars the company delivered in the entire fourth-quarter last year, indicating that the company will need to double its efficient of the fourth-quarter.

RBC Capital analyst Joseph Spak doesn’t believe the company will reach its goals, as he maintains his Underperform rating on TSLA stock and lowers his price target from $245 to $210. (To watch Spak’s track record, click here)

With a consensus estimate of 58.4k Model 3 deliveries, Spak lowers his forecast from 57k to 52.5k, including 21k in Europe, between 6k and 7k in China and the remainder in North America. On Europe, the analyst says stronger Model 3 demand “has come at expense of [Models} S/X,” but that the company is “pushing deliveries to Norway,” which Spak believes is “key to maintaining M3 margins in Europe.”

Along with demand and delivery, Spak is revising expected average selling prices on the Model 3. In 2019, the analyst says Model 3 ASPs are expected to decrease to $53.6k, down from $55.5k, with gross margins down from 19.5% to 17%. 

On the Model X and Model S, Spak revises his quarterly delivery estimates downward, from 22.5k to 19.2k, which is below the 20.7k vehicle consensus. The analyst believes the Model 3 “has impacted demand internationally while the halving of the FIT credit in the US has also weighed.” For the year, the analyst says he is “now looking for 86.4k Model S/X units vs. 92.8k prior, with an ASP of ~ $95k vs. ~$98k prior and gross margins of 25.3% vs. 28% prior.”

Spak’s downward revisions on price and units has had a negative impact on his financial outlook for Tesla. The analyst says, “as a result of our unit and price changes across the Tesla lineup, our 1Q19 non-GAAP EPS goes to ($0.64) from $0.68 prior…[with 2019 non-GAAP EPS going] to ($0.33) from $4.43.” He continues, saying he believes “1Q19 FCF burn of ~$750mm, and after considering the $920mm convert repayment, expect end of quarter cash at ~$2bn. For the full-year 2019, we expect a FCF burn of ~$430mm.”

Overall, Tesla leaves many on Wall Street scratching their heads. While the company makes a strong product, there always seems to be a catch. TipRanks analysis of 24 analyst ratings shows a consensus Hold rating, with ten analysts Buying, six analysts recommending Hold and eight Selling. The average price target among these analysts stand at $324.45, representing an 18% rise from where the stock is currently trading. (See TSLA’s price targets and analyst ratings on TipRanks)


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