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.

Why Tesla (TSLA) Stock Is Headed in the Wrong Direction

The bad news keeps coming for Tesla (TSLA).

The electric automaker reported first-quarter production and delivery numbers last week, and results were unimpressive, to say the least. Deliveries were up big since this time last year (110%) to 63,000 cars, but failed to grow since last quarter (down 31%). Production also decreased big, down 45% since the last quarter, to 77,100 cars.

The one positive — that Model 3 production rose to a record 62,950 vehicles — doesn’t seem to phase Needham analyst Rajvindra Gill, who maintains an Underperform rating on TSLA stock. (To watch Gill’s track record, click here)

Gill is “significantly lowering” estimates after the disappointing release. The analyst says he is “lowering…1Q19 revenue est by $1.6BN to $4.9BN from $6.5BN, and projected Non-GAAP loss to ($1.86) from $0.09.” Gross margins are also being revised down, as “the lower mix of high margin Model S/X” is contributing to a revision of 16.3% gross margin.

The analyst sees bad news continuing for Tesla into the second quarter. Gill is lowering his “2Q19 revenue est by $616MM to $6.1BN vs $6.7BN as [he] believe[s] a demand air pocket will persist until we see evidence of international deliveries.” Stemming from this, he is also lowering total 2019 revenue and EPS estimates, to “$24.0BN/$1.25 (vs. $25.8BN/$4.30).”

While many “bulls have made the argument that demand was pulled forward in 4Q18 before the tax credit expired,” Gill says a “a closer look at 4Q deliveries showed demand for Model S/X deliveries were flat Q/Q for 4Q and declined 3% Y/Y, despite the aggressive year-end incentives, price cuts, and tax credit being intact.” He expects “Model S/ X unit sales to decline 56% Q/Q and 45% Y/Y.”

High supply is also plaguing Tesla. Gill says “overall 1Q19 production of 77.1k units exceeded deliveries by over 20%,” which isn’t new as Tesla was 31% oversupplied in 2Q18, “but supply was absorbed by higher demand in the following quarters.” The analyst does not think Tesla will get off so easy this time, as he believes “it will take several quarters for demand/supply to stabilize given the uncertainty around the international demand (compounded by logistical challenges) & sluggish Model S/X sales.”

Ask three investors, get four answers — that’s how Tesla’s stock looks on Wall Street. TipRanks analysis of 23 analyst shows a Hold consensus, with nine analysts Buying, six saying Hold and ten recommending Sell. The average price target among these analysts stand at $297.33, which represents a 11% increase from current levels. (See TSLA’s price targets and analyst ratings on TipRanks)

To read more on the nitty gritty of what’s going on in the tech industry, click here.


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