What Will Bears Do When Tesla (TSLA) Is Actually Profitable? Guggenheim Weighs in on the Stock
In the long and heated battle between Tesla (NASDAQ:TSLA) bears and bulls, the latter are taking a victory lap after the electric car giant reported solid second-quarter numbers that eased production ramp and cash burn concerns, while reaffirming confidence about profitability in the back-half of 2018.
Indeed, Guggenheim analyst Rob Cihra continues to forecast dramatic volume leverage driving Tesla to profitability starting 2H18E, as it has now ramped Model 3 production to 5K units/week, enabling economics to flip from dramatic cash-burn as big volumes drive big leverage off the big vertically-integrated fixed-cost structure the company has been building.
As such, Cihra reiterates a Buy rating on Tesla shares with a price target of $430, which represents a potential upside of 21% from where the stock is currently trading. (To watch Cihra’s track record, click here)
Cihra opined, “If Tesla turns profitable as we CONTINUE to estimate (and management is guiding), we do not believe “valuation” will be nearly as good a bear case as “losing money,” given Tesla’s growth rate, multi-TRILLION-dollar TAM and unique end-to-end vertical integration from batteries to motors to software to chips to manufacturing to closed-loop sales and services. We recognize investors have quickly turned focus from “can Tesla make the Model 3?” to “can they make MONEY on the Model 3?” but as detailed in our 5/29/18 report, we continue to see Tesla’s fixed vs. variable cost math lining up to drive big fixedcost leverage as Model 3 volumes drive absorption, with our unchanged expectations for a slightly profitable Q3E and Q4E EPS around $2.”
However, the Street does not share this optimism — quite the contrary. According to TipRanks, a site that tracks and ranks analysts on their predictions, Tesla stock has a Hold analyst consensus rating with 10 recent Buy ratings versus 6 Hold and 8 sell ratings. Meanwhile, the $307 price target suggests a downside potential of 12% from the current share price.