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TheStreet Open House

Tesla Is Plunging, but It's Not Why You Think

Stocks in this article: TSLA

With regards to the Model X, that's accounting for the majority of the R&D spending, as the company gears up for initial production of the vehicle in the fourth quarter, with deliveries in the second quarter of 2015. Musk stated Tesla was late on the Model X relative to the company's earlier forecast, as the Model S had to be perfected and brought to international markets. "We're in pretty good shape on the S front, so there's heavy focus on the X front and making sure it's a phenomenal product."

Musk went on to say that the production ramp for the Model X will be much greater than it was for the Model S.

Following the quarter and the conference call, analysts were cautiously optimistic on the future of the company, with several lowering price targets due to the enormous amount of investment this year, as it ramps up spending. Here's what a few of them had to say:

UBS analyst Colin Langan (Neutral, $200 PT)

"TSLA's Q2 guide of 'marginally profitable' is well below cons. EPS of $0.23. The weak guidance reflects higher R&D costs (guide +30% q/q) and SG&A (+15% q/q) primarily related to Model X development while gross margin was guided 'up slightly'. Moreover, TSLA's Q2 guide on Model S deliveries of 7.5k units also missed cons. of ~8.45k; FY guide of >35k implies a 51% increase over H1. Management expects Q2 production of 8.5-9.0k, up only 16% q/q constrained by battery cell supply but expected to improve in Q3. On a positive note, TSLA noted that Panasonic has signed a letter of intent for the Gigafactory & a final agreement is expected by year-end. Tesla also noted that it will start production in China in the next 3-4 years, to serve domestic Chinese demand."

Deutsche Bank analyst Rod Lache (Hold, $220 PT)

"Tesla's results were better than expected. Tesla reported non-GAAP EPS of $0.12, compared with DBe of breakeven. We anticipated a number of significant drags this quarter, including sequentially lower revenue (customer deliveries were below production as vehicles were on ships on their way to Europe and Asia), and a significant ramp-up in operating expenses. These developments were in-line with our expectations. Nonetheless, operating results slightly better than we anticipated."

Morgan Stanley analyst Adam Jonas (Overweight, $320 PT)

"1Q results were in line on gross margin, while weaker at OP due to ramping R&D and SG&A, taking full year estimates down considerably. Giga factory partnerships have yet to come together, leaving TSLA in a sensitive position of breaking ground without having the team formally in place."

Barclays Capital analyst Brian Johnson (Neutral, $220 PT)

"Management noted that Model S demand is robust, and deliveries are still production-constrained; it aimed to quash fears that U.S. Model S demand is modest, commenting that Model S orders in 1Q were up 10% sequentially. However, we continue to see some risk of U.S. Model S demand plateauing, with increased competition from BMW also adding to the risk. Rather, by the end of the year, we expect incremental demand will be largely driven by China. Amidst challenged near-term momentum, we reiterate our EW rating and $220 PT."

JPMorgan analyst Ryan Brinkman (Neutral, $163 PT)

"Tesla reported 1Q results Wednesday which, while impressive overall and evidencing continued solid progress, were only roughly in-line with Street and JPM expectations, and did not reveal significant incremental news flow or feature substantially raised production or delivery guidance. Furthermore, in a move reminiscent of 3Q last year, the firm guided to continued large sequential increases in operating expense which is likely to have the effect of depressing near-term consensus estimates (our own forecast falls modestly). Tesla is clearly unique in many respects amongst our coverage, but it is likely worth pointing out that the trend this earnings season has been for autos and auto parts firms to trade
off modestly on even strongly better results, and for Tesla the bar was likely set higher than for most."

Goldman Sachs analyst Patrick Archambault (Neutral, $200 PT)

"While the quarter posted a headline beat shares fell 7.6% in the aftermarket, which we believe was due to the following factors: 1) 1Q deliveries of 6,457 and 2Q guidance of 7,500 came in below StreetAccount consensus of 6,600 and 8,450, respectively, implying a steeper back-end loaded curve to the company's 35k target which some had thought was
conservative, and 2) steeper opex guidance for 2Q which we believe carries through to higher full year 2014/2015 SGA/R&D expense than many had modeled. Regarding volumes, the 1Q14 run rate of Europe and NA sales implies about 10k incremental sales are needed from Asia to hit 2014 guidance which seems very doable if Europe and NA registrations hold
steady and we think that will remains a key focus in coming quarters. We have less trepidation on the opex front as current Street implied 2015/2016 operating margins of 11% and 15.7% seem to be ignoring company comments that outsized R&D and SGA would keep margins below the mid-to-low teens run rate targeted over the next few years."

Wedbush Securities analyst Craig Irwin (Outperform, $275 PT)

"We see strong positives in Tesla's credible path to longer-term battery cost reduction and the Gen-III vehicle target costs, and what we believe will be a receptive buying public willing to purchase EVs while retaining reasonable expectations for these vehicles. Tesla's multi-year lead over credible competition suggests the company is well positioned to deliver an aggressive volume ramp."

Also See: Tesla Q1 Earnings Live Blog

Also See: Here's the Biggest Risk With Tesla's Gigafactory

Also See: Tesla Sets Way For Future Growth

--Written by Chris Ciaccia in New York

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