Baird Equity Research analysts Ben Kallo, CFA, Tyler Frank upgrade Tesla Motors Inc (NASDAQ:TSLA) to Outperform after news about Tesla’s 2014 Model S delivery guidance. They maintain their $187 price target.
Tesla’s Model S delivery guidance
We are upgrading Tesla Motors Inc (NASDAQ:TSLA) to Outperform and reiterating our $187 price target. We believe production is stronger than anticipated and Tesla Motors Inc (NASDAQ:TSLA)’s initial 2014 Model S delivery guidance could be higher than Street estimates. Additionally, Tesla Motors Inc (NASDAQ:TSLA) remains several years ahead of competitors in battery technology and continues to make progress in ramping production and margin improvement. Although the NHTSA investigation remains an overhang, we believe there are several upcoming catalysts and would be buyers of the stock at current levels.
Initial delivery guidance could top our/consensus estimates of slightly less than 30k Model S vehicles (our initial estimate is 27k). We estimate Tesla Motors Inc (NASDAQ:TSLA) ended 2013 producing ~600 cars per week and could exceed our/consensus estimates in its initial 2014 Model S delivery guidance based on our channel checks, production estimates, and Tesla Motors Inc (NASDAQ:TSLA)’s YE:14 production target of 800 Model S vehicles per week.
Marketing announcements for the Model X should increase throughout the year, which should act as catalysts. We believe Tesla Motors Inc (NASDAQ:TSLA) remains on track to begin production of the Model X by YE:14, which should increase brand value.
Tesla becomes more vertically integrated
Further details surrounding the construction of a battery factory could be a positive – a joint venture could reduce capital expenditures. We believe a TSLA-owned factory should drive gross margin, help supply for future production (including the Gen III), and could reduce supply interruptions as Tesla Motors Inc (NASDAQ:TSLA) becomes more vertically integrated.
Recent NHTSA rating reinforces crash safety but the fire investigation continues. Although the investigation remains an overhang, the Kraftfahrt-Bundesamt (KBA) investigation result supports TSLA and the 2014 Model S again received 5-star test ratings across the board by the NHTSA.
Maintain $187 price target. Our price target is based on 29x our 2016E non-GAAP EPS of $6.41, which includes sales of ~40,000 Model S, ~30,000 Model X, and ~6,300 Gen III vehicles. We believe this is valid when compared to other technology and consumer category creators. Risks include cannibalization by resale market, Model X timing and scale-up, cost over-runs and delays.
