KeyBanc Lowers Estimates on Tesla Motors (TSLA) as Checks Points to Slower Model 3 Ramp

(Updated - December 27, 2017 7:34 AM EST) (updated to expand on analyst comments)

KeyBanc maintained its Sector Weight rating on Tesla Motors (NASDAQ: TSLA), following fourth quarter checks on Model 3 deliveries.

Analyst Brad Erickson suggests a lowering of estimates due to the potential for a slower Model 3 ramp following fourth quarter checks that indicate deliveries are tracking around 5000, a number that is below sell-side estimates, but according to the analyst should be "acceptable" with the buyside. Model S/X appears in-line with management targets, while gross margin judgment day is a few quarters away.

"Based on our conversations last week with salespeople at 18 Tesla stores around the United States, we believe Model 3 deliveries are tracking to roughly 5,000 in the quarter, below our previous estimate of 15,000," Erickson commented.

The analyst admits that fourth quarter Model 3 deliveries, while soft, are not "make or break."

"While we expect 4Q Model 3 deliveries to come in below expectations, we note that a few thousand units shy of expectations likely will not be viewed too negatively by investors," he commented. "We think bullish investors in particular remain more focused on that the car is being produced with minimal defects and that consumer reviews and response are favorable (generally, things have been positive to date, although objectivity from outside Tesla circles remains scarce)."

Given Model 3 gross margin won't really ramp up until probably the middle of 2018 given the production difficulties to date, they think it could take a few more quarters before the company is more harshly judged if gross margin proves disappointing.

The firm's view remains that view remains that: "1) investors will recognize at some point the relative importance of S/X sales, which are not growing, to gross profit, 2) we think gross margin will not ramp in line with expectations, and 3) we are cautious on Model 3 demand at the price point needed if the company is able to achieve its gross-margin target."

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