Tesla (TSLA) Bull Cautious on the Upcoming Quarter

Baird's Tesla Motors (NASDAQ: TSLA) analyst Ben Kallo, one of the biggest bull on the Street, is cautious on the upcoming quarterly report which due after market close on Wednesday, November 5.

Kallo commented, "We are cautious on the quarter. That said, TSLA likely ended Q3 at a strong weekly production run-rate setting up strong future production. We estimate 7,800 deliveries in the quarter, which is in line with TSLA’s guidance. Additionally, we believe the AWD Model S could cause a small short-term demand pocket (likely anticipated by TSLA), but continue to believe TSLA is well positioned for long-term growth."

The firm is lowering overall/auto gross margin estimates to 27.2%/25.0% from 28.1%/26.0% to account for higher warranty accruals. They estimate Q3 sales of $786.3M and non-GAAP net income of ($7.2M) vs. consensus of $896.0M and $2.5M, respectively. Additionally, they estimate Q3 non-GAAP EPS of ($0.05) vs. consensus of $0.00. For Q4, they now expect non-GAAP EPS of $0.60 vs. our previous estimate of $0.65 due to higher expected operating expenses.

The analyst also said production could be slightly lower than expected, but they expect a strong ending weekly run-rate which should set up a solid Q4. "We believe production was ~900 vehicles per week when we toured the factory in August, and believe production is now ahead of schedule with gains from TSLA’s new finishing line."

They believe deliveries will be in line with guidance of ~7,800 vehicles as TSLA continues to improve logistics for international deliveries.

Further, the firm believes there could be a Q4 demand lag as consumers may choose to receive an AWD vehicle in 2015. These issues, however, are short-term in nature.

Commenting on recent demand worries, Kallo said they are overblown. "Several recent articles (including sales estimates provided by Wards Auto) indicate slowing U.S. Model S sales. We, however, believe demand for the Model S remains strong given TSLA’s current U.S. delivery wait time of ~2 months," he said.

The firm reiterated an Outperform rating and $275 price target on TSLA.

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $221.67 yesterday.

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