Next 6-12 Months Crucial for Tesla's (TSLA) Electric Truck Plans, Production Delays May Lead to Temporary Selling in Shares - Piper

March 24, 2021 10:40 AM EDT
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Alexander Potter, a senior research analyst at Piper Sandler, shared key takeaways from the firm's "Electric Truck Day" event that took place last week.

In the short-term, “no-frills light/medium-duty vehicle makers” are likely to generate the most revenue. The two other categories - battery & drivetrain specialists and new vehicle brands targeting high-volume segments - are more tied to a long-term time horizon. Certain companies, like Tesla (NASDAQ: TSLA), can combine expertise from both of these categories.

When it comes to electric trucks, in particular, the current market conditions are characterized by lower supply and high demand.

“Lots of fleets want to start deploying electric trucks and vans. But big manufacturers haven't begun selling EVs in earnest. As a result, a handful of conversion companies have emerged to "electrify" internal combustion chassis. While they will probably have a long-term role to play, we think many of these companies will remain limited to niche medium-duty markets, with annual unit demand measured in the thousands,” Potter writes in a note sent to clients.

“All major commercial vehicle brands will be launching electric trucks. Examples include Ford (NYSE: F), Freightliner, Volvo, PACCAR (NASDAQ: PCAR), and of course, Tesla. High-profile products from new-age startups are also in various stages of pre-production and/or real-world testing; these include offerings from Xos, Rivian, Arrival (NASDAQ: CIIC), and Nikola (NASDAQ: NKLA). But full-scale production has not yet begun, and even the highest-volume segments can only support 4-5 brands. Bottom line: not everyone can win.”

As for Elon Musk’s company, Potter warns investors of potential production delays. This may lead to a temporary selloff with cheaper prices potentially being available as “TSLA remains one of our highest-conviction long ideas,” clarifies Potter.

“Temporary sell-offs seem likely because over the next 6+ months, there is a high degree of unpredictability in Tesla's production ramp. This is particularly true for the company's new plants in Germany and Texas, the latter of which will be producing both battery- and truck-related products using novel manufacturing techniques,” Piper Sandler analyst adds.

The analyst has an Overweight rating and $1200 price target on TSLA.

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