Tesla (TSLA): Gene Munster Shares Key Findings from Q1 Print

Loup Ventures' Gene Munster believes that investors keying into Model 3 short-term gross margins are missing the "point."


Tesla Inc (NASDAQ:TSLA) shares are getting a 7% beating in the market this morning and for Loup Ventures’ Gene Munster, resident tech expert of the Street, this means one thing only: “investors are having trouble seeing the forest through the trees.” Even CEO Elon Musk argues that “moats are lame,” and what matters to measure a “true” competitive leader is simply just how quickly that market player can out-innovate the rest. This is where the research analyst places his full “confidence” in the company, no matter the volatility.

Munster says to keep in mind, Musk’s company continues to maintain its prior goal to close out the second quarter of 2018 at a 5,000 Model 3 run rate produced each week. So, what’s causing investors to get frustrated once more with the volatile tale of Tesla? From Munster’s stance, the fear boils down to an earnings call note that implies a ramp in gross margins on the Model 3 is underwhelming Tesla’s target to the harsh tune of six months- “which needles at the Tesla cash burn topic.”

Yet, the research analyst argues against fears here, asserting: “Focusing on Model 3 near-term gross margins misses the point. The company reiterated that it expects to be GAAP profitable and cash flow positive by year-end, and will not to tap the capital markets for cash. Tesla is undergoing cost-cutting measures and reduced its capex plans for 2018 by 12%, a positive for generating cash.”

Meanwhile, the company’s less expensive SUV, the Model Y has now been delayed back a year to 2020. Munster sees a new emphasis from the company on building a separate factory for production on this release, with odds on China, kickstarting at some point next year. When Tesla becomes a tech machine that reaches a point of cash generation, Munster wagers the company can hook a boost in funds to fuel a new manufacturing facility. Moreover, the analyst believes Tesla could self-fund the development of this manufacturing facility, estimating the electric car giant could realizes $200 to $300 million in cash per month; cash that could bolster a new facility, should the Model 3 achieve a gross margin of 20% to 25%.

Bottom line, to put it bluntly: “Expect Volatility,” Munster concludes, noting: “To paraphrase Elon Musk’s sentiments on the earnings call: If you don’t like volatility, don’t own shares of TSLA. The March conference call was a microcosm of this volatility. That said, we continue to stand behind the Tesla story based on our belief that the company is in front of a massive opportunity related to EV, autonomy, and renewable energy. We expect they will profitably scale Model 3 production in the back half of 2018 and successfully launch Model Y thereafter.”

Has this electric auto empire won over Wall Street’s positive opinion? Not yet, according to TipRanks analytics. Consider that out of 21 analysts polled in the last 3 months, 5 are bullish on TSLA stock, 9 remain sidelined, while 7 are bearish on the stock. With a slight return potential of nearly 3%, the stock’s consensus target price stands at $285.94.

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