Tesla’s stock (TSLA) fell over 3% on Tuesday morning as Wall Street analysts are releasing notes on the company ahead of the financial results tomorrow. To be fair, the whole market is down (NASDAQ -1.15%) and crude oil took a hit (-2.32%), but it is still interesting to know what Wall Street thinks of Tesla going into the earnings.

Stifel analyst James Albertine issued a not to clients this morning and reiterated a ‘Buy’ rating and $325 price target (via StreetInsider):

In early April, Tesla reported 1Q16 deliveries of 14,820 (12,420 Model S, 2,400 Model X), which was below our 16,000 estimate (in line with prior Tesla guidance) at the time as fewer Model S deliveries were offset by 900 more Model X deliveries relative to our prior model. That said, as early delivery Model X transaction prices are likely higher than current Model S deliveries, the mix shift favoring the X could drive revenue outperformance vs. our model. We note TSLA reiterated its goal for 1,000 Model X units produced per week by the end of 2Q16, having ended 1Q16 at roughly 750 units per week.

Despite Model X launch hiccups, including a 2,700 unit recall related to third row seats that could fold forward during a crash, we think management approached this as an opportunity to showcase its world class customer service and may have improved the brand. We would add that as recalls are occupational hazards for essentially all OEMs, customer service during a recall speaks volumes about the brand and we think TSLA is testing well with customers, though expect a slight increase in warranty expenses.

In terms of 1Q16 results, we believe investors will focus on guidance for (a) FY16 deliveries (we expect a reiteration of the 80-90k unit range), (b) automotive gross margin (we believe management will reiterate 30% Model S and 25% Model X targets by FY16-end), (c) expense ramp (guidance for slight sequential increase in 1Q16 from 4Q15, +20% y/y in FY16 vs. FY15), and (d) cash flow expectations/burn rate vs. recent quarters.

As it relates to free cash flow, there are some expecting TSLA will need to raise funds via the capital markets in 2016. We agree this seems logical, given better than expected Model 3 demand perhaps necessitating a pull forward of production-related investments. However, our sense is management will defer this decision until later in the year, choosing to reiterate current guidance (no capital raise) in its 1Q16 report. We do hope TSLA provides more detail on the Gigafactory (production ramp, state/amount of ongoing investment, details related to key partnerships) and perhaps on Model 3 production line construction.

On the other hand, Deutsche Bank’s Rod Lache issued his own note and maintained a ‘Hold’ rating and $280 price target.

Lache had to adjust his estimate following the confirmation that Tesla delivered 14,820 vehicles globally during quarter, fewer vehicles than the guidance of 16,000 units.

Interestingly, the analyst says that he sees a path to Tesla achieving a production rate of 750,000 units a year by 2020 – more than the previous consensus of ~500,000 units a year.

He highlights more scenarios via Benzinga:

The most important aspect would be related to the business plan, and whether there is any change in it, the analyst commented. Focus is likely to be on what to expect regarding volumes, opex, and capex over the next few years, and where this would take Tesla by 2020. Lache believes that the company could easily achieve 500k units, a low-double-digit EBIT margin, and an EPS of $22 in the 2020 timeframe.

There have been certain developments to suggest that Tesla may actually beat these forecasts. The overwhelming demand for Model 3 has “led the company to “re-think” expansion plans,” the Deutsche Bank report stated.

Tesla has already spent $3.4bn capex. Lache said his base case assumes an additional $1.5bn per year through 2020 to get to 500k units. If the company plans for 750k units, an additional $2bn would be invested. In case an additional $2bn equity is sold to fund this plan, the EPS estimate for 2020 would rise $22 to ~$27.

You can read our Tesla earnings preview to know what to expect tomorrow. Tesla will release the results after market close on Wednesday, May 4, 2016 and management will hold a conference call with Q&A at 2:30pm Pacific Time (5:30pm Eastern Time). You can join on the call through Tesla’s website and on Electrek for a live blog of the results and call.

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