Last week, Tesla (TSLA) launched its standard Model 3, which comes 13 years after Elon Musk laid out his “secret masterplan” in 2006 involving an “affordable, high volume car.” While Tesla’s Model 3 has been out for some time now, this is the first time the company will offer a model with a base price of $35,000, which includes a 30% shorter range and standard interior. Musk and Tesla have long promised to deliver a Model 3 at $35,000 base, but have been plagued with production delays and hiccups, so news that the company finally is able to offer such a vehicle is important.
On the news, Roth Capital analyst Craig Irwin is maintaining his Neutral rating on TSLA stock, with a price target of $270, which implies a slight downside potential from current levels. (To watch Irwin’s track record, click here)
Bringing down the cost of the battery is important for Tesla, as this has been one of the primary reasons the company marketed to high-end buyers first. But with a 30% smaller battery, which is expected to delivery 220 miles versus 310 miles for the prior base Model 3, Irwin says the company will “[eliminate] $5,400 in cost” which contributes to its ability to lower the base price of the car.
But while Tesla is able to reduce the price of the Model 3 to a level it has long promised, Irwin believes this could be a sign of caution. He says, “The reduced range M3 is being introduced after two two prior 2019 price cuts, pointing to weak M3 demand.” He continues that “2019 deliveries will also have a lighter slate of options, pointing to margin compression.”
In the analyst’s view, “margin pressures [are expected] to materialize as a major 2019
headwind, and M3 demand issues raise our level of concern.” Prior to the announcement, Irwin was expecting “2019 margins to see headwinds,” but the addition of “lower margin [Model 3] variants” will likely result in “additional headwinds.”
Tesla has been able to dominate the EV market mainly because of its battery prowess. But Irwin noted that “METI data shows Japan automotive lithium ion battery prices around $240/kWh, similar to what Tesla has seen since the beginning of 2015.” The analyst points out that “this implies very limited potential for much improved M3 costs, raising uncertainty for elevated demand.”
Unlike many in the tech world, Tesla is a company Wall Street never knows exactly what to do with. Who the company is performing well, outside noise (including SEC investigations) scare investors away. When things are quiet, the company reports challenges. It’s a classic scenrio of “what goes up must come down,” as is the case with Tesla’s stock chart over the past 12 months. TipRanks analysis of 25 analysts further proves this point; there is a consensus Hold rating on the stock, with nine analysts recommending Buy, seven recommending Hold and nine recommending Sell. There is a $317.35 price target on the stock, representing a 13% rise from its current value. (Get TipRanks’ free stock analysis report on TSLA)
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