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Tesla (TSLA): Is the Recent Move Enough to Lift the Stock? Guggenheim Weighs In

Guggenheim's Rob Cihra notes that once Tesla achieves its crucial Model 3 goals, investors can better see all the reasons to be bullish on TSLA.


Tesla Inc (NASDAQ:TSLA) shares continued to rise another almost 7% yesterday, marking a 21% jump on back of the release of Model 3 production delivery numbers- data that while underperformed Tesla’s own bold expectations still gave investors a sigh of relief. For a company that consistently comes up shy of its own guide, Wall Street seemed glad to see numbers that were not quite as harsh as expected.

Guggenheim analyst Rob Cihra agrees, noting that even if “shy of projections, we think nonetheless show solid trends highlighted by Model 3 finally starting to ramp, exiting at 2K/week or 4X Q4’s exit rate, with targets for 5K/week exiting Q2 still looking doable. Importantly, once Model 3 can hit that milestone we continue to project positive leverage and Op CFlow starting 2H18E, and investor focus finally being able to move on to more drivers including Model Y, Semi, Self-driving tech and Energy.”

In reaction, the analyst reiterates a Buy rating on TSLA stock with a $430 price target, which implies a 44% upside from current levels. (To watch Cihra’s track record, click here)

For context, the electric auto empire posted a 40% quarter-over-quarter jump in production, producing 34,494 vehicles in its first quarter. Worthy of note, this includes 24,728 vehicles of the premium Model S and X coupled with 9,766 of the new Model 3. Highlighting a stride forward from CEO Elon Musk and co., the analyst cheers, “Model 3 was short of our >12K forecast, output nevertheless ramped 4X from just 2,425 last quarter, as Tesla appears to be slowly but ultimately successfully grinding its way up the Model 3 ramp, overcoming production/supply chain bottlenecks in its move to more automated manufacturing.”

A key bullish point for Cihra boils down to the Model 3’s ramp trajectory, as the analyst underscores the TSLA management team sees this as a sturdy set-up to launch the third quarter for a robust positive operating cash flow. As such, for now, it seems the TSLA team will not be seeking an equity or debt raise in 2018.

Glancing ahead, the analyst maintains his forecast of a $1.7 billion cash burn this year, but pinpoints more than 90% of this hitting in the first half of the year. In the back half of the year, Cihra looks for a switch to Tesla operating cash flow positive for the year and becoming free cash flow positive by next year.

True, the analyst understands investors “effectively” only care about Tesla achieving its 5,000 per week Model 3 goals, as the car is pivotal to “both its EV mainstreaming story and ultimate financial leverage.” However, singing the praises of the “dark before the dawn,” Cihra contends: “That said, once Tesla can achieve that 5K/week milestone, we think investor focus can expand to the company’s OTHER incremental drivers, TAM expanders and sources of leverage.”

TipRanks showcases TSLA as a stock that has analysts on edge these days. Out of 20 analysts polled in the last 3 months, 5 are bullish on TSLA stock, 9 remain sidelined, while 6 are bearish on the stock. With a return potential of only 1%, the stock’s consensus target price essentially mirrors current trading levels, standing at $310.00.