Tesla: Despite Record Q1 Numbers, Uncertainty Looms Ahead


Tesla (TSLA) and its mercurial CEO Elon Musk are never far from the headlines and not always for the right reasons, but last week the company delivered some good news, as it announced its best Q1 ever. Tesla produced 102,672 vehicles and delivered 88,400 in the quarter, 76,260 of which were Model 3s, with the rest taken up by Models S & X. The numbers take into account the shutdown of Tesla’s Fremont factory on March 23. The figure also easily beat the Street’s estimate, which called for a total of 79,900 deliveries. Musk also began delivering Model Ys in March, ahead of schedule. Furthermore, despite closing down during the extended Chinese New Year on account of COVID-19, its Shanghai factory has been able to attain record levels of production.

So, good news, right? Yes, but what lies ahead is more problematic, says Needham’s Rajvindra Gill. The long time Tesla bear reiterated an Underperform (i.e. Sell) on Tesla shares, without suggesting a price target. (To watch Gill’s track record, click here)

The analyst explained, “Despite the strong numbers, we remain cautious on TSLA’s deliveries for the remainder of 2020, as automotive demand has largely collapsed in North America and Europe due to the impact of COVID-19. Moreover, it is unclear when the Fremont factory will be back online, significantly hampering Tesla’s production capacity. In the long-term, we continue to expect margin pressure from declining sales of higher-margin Model S & X vehicles (GMs of 25-30%), a lower mix within Model 3, and competitive pressures from other automotive OEMS as they launch their EVs over the next few years.”

Overall, Wall Street is not convinced that Musk’s tech empire’s reward is worth all the risk, especially when taking note that TipRanks analytics exhibit TSLA as a Hold. Based on 28 analysts tracked in the last 3 months, 5 rate a Buy on Tesla stock, 13 maintain a Hold, while 10 issue a Sell on the stock. The 12-month average price target stands at $498.65, marking a slight downside from where the stock is currently trading. (See Tesla stock analysis on TipRanks)

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