Benjamin Rosen

About the Author Benjamin Rosen

Originally from Pittsburgh, Ben Rosen is a student at the University of Michigan -- Ross School of Business pursuing his degree in Finance and Management. Ben came to intern for Smarter Analyst after his freshman year where he developed a strong passion for financial markets and confirmed his interest in pursuing a finance-related career. Ben is involved in a number of different organizations, including BBA Finance Club, Michigan Real Estate Club, Enactus, and the Michigan Investment Group, where he serves as sector head for the technology, media, telecommunications desk. In his free time, Ben enjoys playing sports, travelling with friends, and rooting for the Pittsburgh Steelers.

Tesla (TSLA): To Focus on Ongoing Problems or Push for 2H18 Profitability?


After cranking out its target 5,000 Model 3s in the final week of Q2, Tesla’s (NASDAQ:TSLA) future looked as assuring as it had in a long time. It took less than a week’s time, though, for word to crop up that the company was only able to do so by foregoing brake tests, reusing questionable parts, and enduring an intensive burst-build. In turn, TSLA declined about 12%; the stock has since steadied out a bit, but uncertainty on the tech leader’s future still lingers.

Like many, top blogger Bill Maurer (ranked #89 out of 6,590 bloggers on TipRanks), remains on Tesla’s sidelines. While Maurer does believe the firm’s second half goal of grossing positive margins is feasible, he also realizes that Tesla will have to overcome quite a few obstacles to get there. At the end of the day, the blogger speculates that in order to achieve profitability in 2H18, TSLA will have to concentrate on attacking many of its present issues rather than some of its longer-term goals. From inadequate production of all three of its models to poor management of its balance sheet expenses, Tesla has plenty of work cut out for it.

Several of the tech leader’s posing conflicts stem from the production of its latest and most anticipated design, the Model 3. The base and highest-demanded version, retailing at $35,000, currently requires consumers to wait at least 6-9 months to get their hands on a vehicle. So, by the time the deliveries would actually arrive, a large portion of the current 420,000 reservations may very well be withdrawn. At the present rate of 3,500 to 4,000 models per week for July, Tesla is falling well below its Q2 target of 5,000 units per week, let alone its Q3 goal of 6,000 units. On top of domestic manufacturing issues, Maurer emphasizes that postponed production of right-hand driving models, as well as those going to Europe and Asia, have also been ongoing struggles. As if it didn’t already have enough problems, Tesla is not offering any lease option at all for this design, which could very well lead to further reduction of the reservation list. More so than just Model 3 production concerns, Tesla is simultaneously grappling with Model S and X output as well.

The electric auto giant has delivered about 100,000 combined S and X models this year, and when asked why there haven’t been more, the company replied that it is “constrained by battery cells.” Whether or not this is true, Maurer suspects Tesla may just be waiting for 2019 to ramp up production, as the EV tax credit will be cut in half from $7,500 to $3,750. While TSLA claimed it was going to revamp monthly deliveries, though, the blogger maintains it still has not done so, as “July shows a return to the old ways.” The most depressing part about the S and X story is that production is only a mere fraction of Tesla’s problems. TSLA also faces the issue that the 2-year leases of 3Q16, its second most successful quarter ever, are coming to a conclusion. Why does this matter? Instead of being able to lease for $593 per month, which was the available deal in 2016, consumers will now be charged $936 per month, a 57% markup, for no extra amenities in the vehicles. To top it all off, Jaguar is releasing its own EV this quarter, the I-Pace, which Maurer can foresee being a considerable threat down the road.

The last of TSLA’s major struggles are its vast overhanging debts. Though the company does have $2.7 billion on hand, Maurer emphasizes “it will burn through a good portion of that in Q2 thanks to a sizable loss as well as ongoing capital expenditures. Perhaps if it paid off some of its surging accounts payable, it would fall even further.”  In addition to these expenses, Tesla also donates hundreds of millions every year to solar energy systems, which isn’t reported as part of its current -$8 million net cash. The blogger ends on the note that yes, Tesla could reduce some of its longer-term plans to generate a quarterly profit, but that likely means “plans for the Semi, the Model Y, solar roof ramp, and second generation Roadster likely have to be pushed back.”

TipRanks exhibits similar looming caution on TSLA. Of the 24 Wall Street analysts polled in the last 3 months, 9 are bullish on the stock, 7 are sidelined, while 8 remain bearish. With a target price of $299.63, TSLA implies -2.23% downside potential from current levels.

 

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