Loup Ventures

About the Author Loup Ventures

At Loup Ventures, research is in our blood. The spirit of our team has always lived on the curiosity to discover new insights that yield investment opportunities. For years we did this on Wall Street, focused on public tech companies. Now we invest in private frontier tech companies, but public companies like Tesla, Nvidia, and others are also meaningful innovators in frontier tech. These public companies are shaping the emergence of AI, robotics, autonomous vehicles, and AR/VR just as much as early stage startups. As a result, we’ve always kept a watchful eye on public market participants to inform our private investment strategy. Gene Munster is a managing partner and co-founder at Loup Ventures. Prior to Loup Ventures, Gene was a managing director and senior research analyst at Piper Jaffray where he covered technology companies including Apple, Amazon, Google and Facebook. During his 21-year tenure, Gene received many acknowledgements including: Top Stock Picker from Forbes, Best on the Street from The Wall Street Journal, and was widely recognized for his work on Apple. Gene holds a bachelor’s degree in finance and entrepreneurship from University of St. Thomas.

It’s Time to Cut Estimates for Tesla (TSLA); Stock Remains a Long-Term Opportunity


By Gene Munster

Tesla (TSLA) shares are down 27% in the last month. At the core of this decline is investors’ heightened concern about baseline demand following the fulfillment of initial pent up demand for Model 3 and the declining tax credit.

More recently, since the breakdown of US-China trade talks on May 5th, the case for Tesla missing their numbers has been strengthened. Prior to May, analysts had expected Tesla to deliver less than 360k vehicles in 2019 (vs. guidance of 360-400k), but recent revisions have further reduced expectations. Our takeaways:

  • We have lowered our 2019 delivery estimates by about 10% from 340k to 310k vehicles. Guidance as of the March earnings calls for 360-400k vehicles.
  • We have lowered our China delivery estimates for the balance of 2019 from 70k to 40k vehicles. We now expect China to account for 13% of deliveries in CY19 compared to our previous estimate of about 25%. As a point of reference, China, the world’s largest EV market, accounted for 17% of revenue in Mar-19 with limited Model 3 deliveries.
  • We are lowering our numbers as a precautionary measure related to two unknowns. First, we are now factoring in that Tesla deliveries will be impacted by tariffs entering China. Ours is a minority view because most investors expect Tesla will be exempt from tariffs given the company’s investment in the Shanghai Gigafactory. Second, non-tariff factors that will impact China demand include Chinese consumers boycotting Tesla and Chinese officials adding complexity to the delivery process.
  • Despite these negative revisions, we continue to believe the company will survive to capitalize on the global EV growth curve. Our optimism about the company’s ability to weather the storm is based on Tesla’s cash position following the most recent capital raise, which now stands around $5B.
  • Our high-level math suggests the recently raised $2.7B gives a two-year cushion if deliveries come in at 300k for both 2019 and 2020. If deliveries fall below 300k in each of the next two years, the cushion will be less than just over 2 years.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.

 

Read more: Tesla (TSLA) Stock Isn’t a Bargain, Despite Recent Sell-Off, Says Needham

 

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