Tesla (TSLA) Q3 Results May Disappoint and Model X Delay Longer Than Anticipated, Analyst Says

October 3, 2014 11:57 AM EDT
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CLSA analyst Andrew Fung weighed in on Tesla Motors (NASDAQ: TSLA) Friday following a recent factory tour. Fung came away impressed with the uptick in activity versus earlier in the year. He said while the company appears on track to hit deliveries target for 2014, they perceive some risk that 3Q results could fall short of guidance and believe the launch of the Model X may be several months later than anticipated.

Fung notes the final assembly line is up and running, enabling the automaker to increase its production capabilities from 800 vehicles per week to 1,000 vehicles per week. "The level of activity on the factory floor is encouraging and with waitlists still at 4-6 months depending on region, Tesla continues to enjoy stronger demand than it can supply and well on track to reaching its target of 35k deliveries in 2014, in our view," he said.

On potential risks to Q3, Fung said company comments around the new assembly line suggested that the downtime and ramp-up process may have taken a bit longer than planned. "While purely a timing issue, 3Q deliveries may come in lower than the guided 7,800 units, as some volume shifted to 4Q," he said. "Tesla also announced during the quarter that it is increasing the warranty on its drive-unit and will take a reserve adjustment for it, which may not be factored into all estimates. As such, 3Q results could come in below consensus EPS of US$0.02 and more in line with our estimate of -US$0.07."

On the Model X timing, Fung notes Tesla indicated that beta versions of the Model X will likely be on public roads for testing early next year, while production is expected to ramp up in 2Q15. "This suggests meaningful deliveries will not begin until the summer, several months later than the spring timeframe many investors assume," he said. "While demand certainly appears robust, with an estimated 20k+ orders globally, the 2H15 timing may put some pressure on the most optimistic estimates."

Fung also commented on the "D" announcement and believes the D refers to the long-anticipated all-wheel-drive (AWD) version of the Model S, with the D standing for dual-motor. "Availability of AWD is a strong positive for demand, as the feature is immensely popular in regions where it snows, which along with other enhancements (eg, active safety content), should support continued sales momentum," he said.

The analyst said while the Q3 push-out and Model X delay may disappoint some investors, they believe the recent pullback in the stock and any potential weakness on 3Q results provide a more attractive entry point. They reiterate an Outperform rating and US$300 target price.

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