Analyst Brad Erickson from Pacific Crest issued a new note to clients today following a visit of the Tesla Fremont Factory. The analyst noted that Tesla appears to be on track to exit the second quarter at the a production rate of 2,000 cars per week (Model S and X combined) and it is tracking toward its annual delivery target of 80,000 to 90,000 vehicles.
While Erickson appears confident that the automaker can achieve its short-term delivery goals, he is more cautious about Tesla’s new plan for 500,000 vehicles in 2018.
Here’s what the analyst had to say following the factory visit in Fremont (via Barron’s):
After a Fremont factory tour and updated channel checks, we are more positive on Tesla in the near term. Our Sector Weight rating still assumes a more-achievable longer-term production ramp and profitability versus the company’s lofty targets; however, solid near-term execution could improve sentiment, causing the market to become less skeptical of these longer-term challenges.
Model X production run-rates are hitting benchmarks. In a tour led by VP of IR Jeff Evanson, commentary indicated that Model X production is ramping in line with Q2 expectations, and we found the tone incrementally more confident regarding potential further quality issues for X.
Company appears to be tracking toward annual delivery targets. With a steep 2H ramp, we maintain that the upside opportunity appears limited; however, if Tesla can exit Q2 at 2,000 cars produced per week (as was the expectation as of last print), it would likely not have to increase much on a per week basis throughout 2H to meet the midpoint of target ranges.
Optimism could rise again, but we remain Sector Weight on more-achievable longer-term targets. While we think the stock’s reaction after last quarter illustrated significant investor skepticism around the accelerated Model 3 production ramp, we believe shares could see further appreciation in the near term on improving sentiment and near-term targets appearing more readily achievable. Over the medium to longer term, however, the size of potential cash burn continues to concern us, and we believe the 2018 plan laid out by management for half a million deliveries could prove overly ambitious and carries with it extreme financial risk if production missteps were to occur again.
Brad Erickson is ranked #3,818 out of 3,990 analysts on Tip Ranks with a 36% success rate and average return of -19.7%.
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