Stocks

Tesla Inc Stock Stalls Despite Positive Call On Model 3 Production Targets

Tesla Inc (NASDAQ:TSLA) stock stalled on Friday despite positive analyst commentary suggesting potential upside to Tesla’s Model 3 production targets for the first quarter. That would be quite a change of pace for the EV maker lately, as it has yet to deliver anything close to expectations as far as Model 3 deliveries go. Production bottlenecks have plagued the assembly line since early in the process, and Wall Street has been receiving (and sending, in a few cases) mixed signals on whether production is improving.

tesla stock tesla's model 3 production targets
Blomst / Pixabay

Tesla’s Model 3 production targets may now be beatable: Instinet

In a note on Friday, Nomura Instinet analyst Romit Shah said Tesla’s Model 3 production targets now seem to be more realistic, which is making him even more bullish on Tesla stock. As a point of reference, he already had a Buy rating and ultra-bullish $500 price target on Tesla stock, so it’s hard to imagine becoming more bullish than that.

In Friday’s note, he said that Tesla’s Model 3 production targets have now caused him to cut his estimates for the first half of this year, but he also said that he’s “encouraged by the progress on Model 3 production.” Shah continues to expect the automaker to post greater-than 100% sales growth this year.

He said that it seems that finally, it looks like Tesla’s Model 3 production targets might be beatable. The automaker delayed its expectation of producing 5,000 Model 3s per week again. This is the third delay of that milestone, which was shifted from December to March and now to June. While setting those potentially conservative targets, the company also gave is “allowing itself to address customer feedback and prioritize quality control,” he added.

The customer feedback he’s referencing could be the cries of bait and switch from Model 3 buyers who have been angrily tweeting about the cars they paid extra on for “premium upgrades.”

JPMorgan on Tesla’s Model 3 production targets

Not everyone is so optimistic about Tesla’s Model 3 production targets, however. In a note to investors just after the company revealed its latest miss on Model 3 deliveries, JPMorgan analyst Ryan Brinkman reiterated his Underweight rating and $185 price target for Tesla stock. He’s the one who called for investors to sell Tesla stock short early last month.

Brinkman questioned whether Tesla has overestimated how easily it can manufacture the Model 3. He noted that the EV maker delivered 29,870 vehicles during the fourth quarter, missing the consensus of 31,815 and his own estimate of 38,000. The shortfall was driven by the Model 3 again, as Tesla delivered only 1,550 Model 3s, versus the consensus of 5,257 and his own estimate of 10,000. It is rather strange that he had such an obscenely high estimate for Model 3 deliveries, given how bearish he is on the company.

He remains skeptical of Tesla’s ability to simultaneously achieve a “relatively low average selling price” for the Model 3 and a “relatively high gross margin. The company is targeting 25%, which he notes is “a more luxury-like” gross margin in the automotive industry. He also notes that if the automaker did indeed overestimate how easily it could manufacture the Model 3, then it has probably also underestimated the costs associated with manufacturing it. If so, then he said his bearish outlook of Tesla stock is reinforced.

Tesla stock slipped by less than 1% in intraday trading on Friday, falling as low as $333.67.