Tesla's (TSLA) New, Cheaper Model 3 May Be Better than the Model S - Analyst
Morgan Stanley's Tesla Motors (NASDAQ: TSLA) analyst Adam Jonas asks "Is the Model 3 Better than the S?" He thinks it is
Jonas has 4 key thoughts following the Model 3 event:
1. Based on the limited information disclosed at last night's unveiling, we think this car is probably much better than the Model S. Certainly the higher-performance versions can be faster, offer more dynamic performance, more driving pleasure. We suspect this is a reason why management didn't share too many details on specs besides headline numbers (0 to 60 in under 6
seconds, 215 mile EPA range) because too much excitement around this model could potentially cannibalize the Model S in a significant way. Maybe that's a high quality problem, but one they'd rather not exacerbate.
2. The projected growth of the supercharger and dealer network is very telling. Not so much for their expectations of sales volumes, but for what we believe may be the ultimate incarnation of the company's 'master plan': a shared, autonomous electric transport network where revenue is generated through the sales of miles rather than units. Doubling the numbers of stores and superchargers in the next 12 months starts to imply some very serious physical numbers of real estate and service assets in the field to support the captive ecosystem of a transportation megafleet. Tesla is shouldering the costs of an ever growing physical network of captive service and free charging. While these costs could be considered partially a marketing expense today, we believe the proprietary network is critical to delivering mobility service-based revenue in the future.
3. Could this be the fastest growing customer order book in the history of autos? Savvy marketing ahead of the unveiling has flooded the internet with videos of long customer lines snaking around the blocks of Tesla stores across the country, creating a festive sense of the occasion and a sense of scarcity. Granted, it's only a fully refundable thousand dollar deposit but to achieve well over 100k preliminary orders for any car in the first 24 hours even with no deposit is an admirable achievement (we understand the reservation total approached 140k units towards the end of the unveil event). We are not aware of any precedent of this level of order interest for any other car on the first day of an unveil. And the orders kept coming throughout the evening of test drives. How many days will it take for the order book to cross 200k units? 300k units? For perspective, our 2020 forecast for the company's total completed unit delivery total (Model S, X and 3) is just under 249k units or less than 1/2 Tesla's own targets.
4. The implications of successful momentum in the order book go beyond adding some sense of visibility for forward demand. We believe the milestone may mark an important pivot in investor sentiment which has been rather negative around the company for the past few quarters. This turn can be accelerated if accompanied by the first early authorized magazine reviews of the Model X which we expect may be published very soon. Such events may seem trivial to the shares of a company with over a $30bn market cap. But it may not be, particularly if consumer excitement spreads to the providers of capital which the company has relied upon to help absorb heavy up-front financial losses and to fulfill its product and business model ambitions over the years.
Jonas said if Tesla can produce and deliver (even roughly on time) the car they unveiled last night at close to a $35k price, then this stock is probably quite undervalued. He reiterated his Overweight rating and price target of $333.
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Shares of Tesla Motors closed at $229.77 yesterday.