The electric auto powerhouse is surpassing Loup Ventures’ Gene Munster expectations and taking a big leap toward positive margins. On Monday, Tesla (NASDAQ:TSLA) announced it had at last reached its quarterly production goal of 5,000 Model 3s per week. Musk & Co. had been pursuing this number for several months, and since reaching it, are confident the company will finally turn a profit by the end of 2018.
After spying on production for a few days, Munster estimates Tesla would finish Q2 producing only 4,300-4,900 Model 3s per week. However, producing as few as 4,300 units per week would keep the electro car giant on track to generate positive gross margins by Q4, and as such, the analyst remains favorable of TSLA stock.
Tesla put the pedal to the metal with Model 3 production in Q2. Having only produced 9,766 units in all of Q1, TSLA showed no signs of reaching its target goal of 5,000 per week by the end of Q2. However, in the back half of last quarter, the electric auto giant was able to burst-build Model 3s, reaching its goal and boasting its improvement from Q1. Tesla nearly tripled Model 3 production in three months, manufacturing a total of 28,578 models last quarter. However, since over 1/6 of the vehicles were produced during last week alone, the question that arises is whether or not Tesla can sustain this rate of production every week.
While a record 5,031 Model 3s were cranked out, only a combined 1,913 Model S and X vehicles followed. Though, considering S and X production remained stable from Q1 to Q2 (24,761 to 24,728), Munster has little concern about any designs other than the Model 3. The analyst is optimistic that if Tesla can achieve 6,000 units per week by the end of August, which it claims it should, the company will be in a prime position to generate long-awaited positive margins in Q4.
As production has boosted, so have expectations about the stock; though, even Munster has some doubts on TSLA. Now that Tesla is inching toward the delivery of its 200,000th vehicle, the analyst anticipates demand to be higher than ever, but he isn’t exactly sure where it will be in a year or two. Number 200,000 marks the beginning of the tax credit period in which Tesla customers’ car payments will essentially be subsidized. As Munster expects this delivery to occur in early Q3, the tax credit phase out would unfold as follows: $7,500 for the rest of Q3 and Q4, $3,750 during next Q1 and Q2, and $1,750 during next Q3 and Q4. The credit will be concluded after 2H19, so Munster isn’t sure where to expect demand to be then. For now, however, demand is hardly a concern at all.
Current Model 3 reservations stand at over 420,000, excluding the 28,386 that have already been delivered. Initially, due to production delays, Munster was sure the list would dwindle down. Though, most reservations have stayed put, and the tables have even turned for the better. Now, the analyst “expects reservations to increase as more owners become evangelists for the product and cars become available for test drives in Tesla stores.”
TipRanks suggests an apprehensive Hold rating on TSLA shares. Of the 21 Wall Street analysts polled in the last three months, 7 are bullish, 8 are sidelined, and 6 are bearish on the stock.
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