Tesla Inc (TSLA): Investor Patience ‘Running Thinner’

RBC's Joseph Spak is dialing down his price target after 'slashing' long-term expectations on TSLA.


Tesla Inc (NASDAQ:TSLA) just disappointed investors with its production numbers for the first quarter of the year that came up short of guidance- a guide that had already been substantially cut from original expectations.

RBC Capital analyst Joseph Spak notes that while the TSLA management team offered “some color” that can be deemed reassuring for the short-term, “longer-term concerns” hang in the balance.

In reaction, the analyst reiterates a Sector Perform rating on TSLA stock while cutting the price target from $380 to $305, which implies a close to 11% upside from current levels. (To watch Spak’s track record, click here)

Consider that where the Street was aiming for TSLA to hit 11,092 in Model 3 deliveries, Tesla only posted 8,180. Meanwhile, with Moody’s downgrade to just seven steps from a junk bond credit rating, a NTSB investigation into Autopilot following a crash on a California highway, and a Model S recall amiss, the analyst notes Model 3 production market concerns are yet another drag on shares. TSLA shares lately have been massively underperforming the S&P, and none of these resultant issues have “helped” the electric auto empire regain investor confidence.

Positively, Spak spotlights elements of “stronger recent production pace, no debt/equity raises needed” as “encouraging.” Yet, following another bout of underwhelming Model 3 production numbers, the analyst confronted his long-term estimates as “likely too aggressive.” The analyst acknowledges an epic brand legacy here and potentially even down the line- yet, the question here is, “will that be enough to overcome” its challenges?

Tesla notably has produced 2,020 Model 3 vehicles within seven days. Though this falls shy of the company’s first quarter goal for 2,500 Model 3s each week, the analyst acknowledges a fulfilled target of 5,000 per week by the close of the second quarter. However, “To be frank, it’s too early to tell whether this is achievable,” warns Spak.

Ultimately, “We recognize Tesla is difficult to value and prone to momentum and sentiment. Our DCF approach isn’t perfect, but does attempt to place some sort of intrinsic value on the company. […] We suspect others may also lower longer-term assumptions over the coming months. But in doing so, this may actually make expectations more reasonable/achievable. To date, the company has mostly gotten a pass on missing targets but we sense investor patience is running thinner. So a lower bar could be good and long-term bulls and true-believers may find this level to be an attractive entry point. And from a trading perspective the next move may be higher. But in our view, a lot still needs to go right for a long time to justify recommending adding multi-year capital on a risk (and volatility) adjusted basis. Starting to hit some nearer-term targets is necessary for us to gain more confidence in longer-term assumptions,” Spak concludes.

TipRanks showcases the electric auto empire as one that has divided Wall Street consensus opinion. Out of 20 analysts polled in the last 3 months, 5 are bullish on TSLA stock, 9 remain sidelined, while 6 are bearish on the stock. With a return potential of 13%, the stock’s consensus target price stands at $310.00.