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’s (TSLA) Gigafactory Is Impressive, But Its Stock Isn’t, Says RBC Capital


Is Tesla’s (TSLA) Gigafactory the key to its success? It depends who you ask.

Tesla relies on its Gigafactory to supply the batteries necessary to power its electric cars, and though Gigafactory 1 in Nevada is only 30% complete, it is already the highest-volume battery plant in the world. When complete, it will be the largest building on the planet, and as much as five times the size of the Pentagon. Tesla says its Gigafactory was “born out of necessity and will supply enough batteries to support Tesla’s projected vehicle demand.”

5-star RBC analyst Joseph Spak has recently toured Tesla’s Gigafactory 1, and hosted an investor meeting with Sr. Director IR Martin Viecha. Spak describes the site as “impressive,” but overall he remains bearish on the stock, rating it an “underperform” along with $190 price target. (To watch Spak’s track record, click here). 

Commenting on the factory, Spak says he “saw a lot more of the operations, both Panasonic’s cell manufacturing and Tesla’s pack and drivetrain assembly,” and left with a “greater appreciation for the complexity and challenges involved in making the ‘guts’ of an electric vehicle.” But while the company showed-off increase efficiency, Spak says “it does appear that further efficiency gains are still possible.”

Furthermore, full self-driving (FSD) remains a key feature in Spak’s assessment. The analyst believes FSD is vital to the margin story, but stresses that “feature release won’t help cash (as already received) unless it causes future take rates to go higher.” 

Beyond its cars, Tesla recently made news for its new insurance business. Tesla Insurance Services is only available in California to begin, but the company says it will eventually roll-out to the rest of the country. The service is specifically designed for Tesla, with rates “competitively priced” as much as 30% less than current rates. 

Consensus Verdict

All in all, Tesla is making noise for things that are not related to the actual business performance. Gigafactory 1 remains an engineering marvel, while Insurance is a neat new service, but neither necessarily is helping analysts become more comfortable with buying the stock. This is shown by TipRanks analysis of 28 analysts ratings, which shows a consensus Hold rating. In the last three months, TSLA has received 8 ‘buy’ ratings vs. 14 ‘sell’ and 6 ‘hold’ ratings. With an average analyst price target of $251.33, Wall Street analysts clearly don’t see any turnaround in the stock.

 

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