Here’s Why Wall Street Is Divided on Tesla (TSLA) Stock Ahead of Earnings


Electric car giant Tesla (NASDAQ:TSLA) keeps reminding the Street that production of its Model 3 electric sedans is up substantially in the last 12 months. However, maintaining this level of production has turned out to be a lot more expensive than CEO Elon Musk predicted. As such, the balance sheet shows a lot more red ink than it used to.

Indeed, with TSLA reporting second-quarter results on Wednesday, Oppenheimer analyst Colin Rusch believes a closer look at cash margins is critical for investors to interpret results and anticipate stock performance.

Rusch stated, “We continue to believe manufacturing margin on Model 3 is the key driver for TSLA to reaching positive operating cash flow and demonstrating significant operating leverage. We believe Model 3 cash gross margin will be driven by labor absorption, yield loss/rework expense, and mix […] Given negative sentiment, we see the possibility for a short squeeze should operating CF prove better than feared but maintain our cautious stance on shares.”

The analyst continued, “We assume baseline cost similar to global auto OEM light-duty vehicle average. The Incremental Power Train Expense accounts for battery expense and premium for the balance of an EV powertrain. For the labor estimate we assume under-absorption of a normalized $2500/vehicle run-rate and a 5K/week baseline. We believe yield loss and rework expense are the two variables where there is little information to reference. We believe details on these variables will be critical to attend to in the 2Q:18 earnings call.”

Net net, Rusch remains sidelined on Tesla stock with a Perform rating. (To watch Rusch’s track record, click here)

It appears the voice of the Street backs Rusch’s sidelined vantage point on Musk and co. Out of 23 analysts polled by TipRanks in the last 3 months, 9 are bullish on the stock, while 6 remain sidelined and 8 are bearish. With a return potential of 7%, the stock’s consensus target price stands at $308.71.

 

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