Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Tesla (TSLA) Stock Bulls and Bears Agree to Disagree; Needham Weighs In


Tesla (TSLA) stock was down 43% between the beginning of the year and June 3rd — but is now up 43% since then. What is the true story of the electric car giant? 

Though Needham analyst Rajvindra Gill maintains his Underperform rating on the stock, he notes both a bull and bear case for Tesla. As always, the debate around Tesla centers on deliveries, future demand for Model 3, gross margins, long-term profitability, and the competitive landscape. 

 

On deliveries, Gill says the bulls look at Tesla’s record-breaking second-quarter, where it delivered more than 95,000 cars. Further, “bulls believe the company can deliver over 200k in 2H19 and hit its annual target,” of between 350-400k. But bears disagree, with Gill saying this camp believes the “Q2 delivery figures paint an overly optimistic demand picture,” and “skeptical of Tesla’s ability to meet its 360-400k delivery target for 2019.” 

As many Tesla investors are investing on future potential, future demand is also an important factor. But with a sharp decrease in Q1 demand, many have been worried that the future will be a reflection of the present. On this, the analyst says bulls “believe that demand worries are overblown, arguing that the soft Q1 deliveries were mainly due to logistical issues and uncertainty surrounding store closures and pricing structure.” 

Product aside, bears are increasingly concerned with Tesla finances. Gill points out that Tesla’s gross margin is a concern for bears, as it has been historically “low and has recently come under additional pressure from declining sales of higher-margin Model S/X (25-30%), a lower mix within Model 3 (release of $35k standard battery), and aggressive pricing.” In-line with this, “bears are concerned about Tesla’s ability to sustain long-term profitability.” 

Finally, while Tesla was once a leader in autonomous technology, bears, including Gill, believe “that Tesla’s lead in ADAS/ autonomy is relatively small and is quickly declining.” He continues, “beginning in 2020, many believe that L2 [level two autonomy] vehicles from other OEMs (Toyota, GM, Ford) will reach the mass-market and offer similar capabilities, including adaptive cruise control, lane departure warning, etc.” 

All in all, Gill has made clear he is in the “bear camp,” and many on Wall Street agree with him. TipRanks analysis of 26 analyst ratings shows a Hold consensus, with nine saying Buy Buying, five suggesting Hold and 12 recommending Sell. The average price target among these analysts stands at $262.64, which aligns evenly with where the stock is currently trading. Wall Street needs to see more from the electric car empire before getting more confident on the story. (See TSLA’s price targets and analyst ratings on TipRanks)

 

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