Is Tesla (TSLA) going from bad to worse?
That’s what some investors are bracing for as the company will release Q4 earnings at the close of market today. The electric car maker had taken investors on a tumultuous ride in 2018, as the company’s stock price rose or fell by 10% more than a dozen times. 2019 is proving to be much of the same — the stock rose 11% within the first few weeks of the year, before falling 14% since January 17th. While investors know what to expect when it comes to quarterly performance, many are concerned that the company will bring down expectations for 2019. For example, Tesla recently announced it was laying off a portion of its workforce to promote profitability, while also decreasing prices on models across the board in order to offset a reduction in the federal tax credit for electric vehicles, which was cut in half at the beginning of the year.
Nevertheless, amid all the noise, Oppenheimer analyst Colin Rusch remains confident in the stock, reiterating his Outperform rating and $418 price target. (To watch Rusch’s track record, click here)
Rusch is bullish on 2019, believing “Model 3 demand, production, and margin are the primary drivers of stock performance” this year. He concedes that “numerous additional variables will be increasingly important to investor dialogue starting with this quarter,” including “plans on debt repayment and capex for US/China capacity.”
The topic of debt has been largely hidden in the sand, as production and CEO Elon Musk has garnered most attention. But Rusch doesn’t see Tesla’s financial state as a concern. He believes Tesla “has sufficient cash to service its $920M convertible note due in March” and anticipates “management will articulate concrete plans for doing so while managing working capital and capex needs.”
Looking forward, the analyst expects “an update on the company’s product roadmap and timing beyond Model 3.” Rusch says Tesla could help support its stock by providing an update, including on the Model Y and the Tesla pickup truck, which he says “could see significant demand should it announce timing for production ramp.”
One major challenge Tesla faces in 2019 is pricing. The federal tax credit for electric vehicles offered a credit of up to $7,500 credit for buying electric vehicles, but was cut in half on January 1st of this year. This essentially increased the prices on Tesla vehicles across the board, with the affordable Model 3 feeling it worse as its middle-class buyers would have a harder time affording a more expensive vehicle. The company decided to cut its vehicle prices by $2,000, which may have a significant impact on revenue if the company is not able to increase demand.
As Tesla faces headwind in 2019, Wall Street doesn’t know what to do about its stock. TipRanks analysis of 22 analyst ratings show a Hold consensus, with 6 analysts recommending Buy, 7 Hold and 9 Sell. The 2 analysts have an average price target is $315.30, or 3% higher than current levels. (See TSLA’s price targets and analyst ratings on TipRanks)