Things are coming down to the wire for Tesla Motors as investors anxiously wait to see whether the automaker is able to achieve the lofty delivery target it has set for itself. Analysts have especially been concerned about whether the automaker will be able to ramp production of the Model X quickly enough, but analyst Dan Galves of Credit Suisse says investors don’t have anything to worry about. His view runs counter to a report earlier this month from another Tesla bull who actually forecasts a miss.
After Galves released his positive report, shares of Tesla Motors climbed by as much as 5.4% to $230.04 per share during regular trading hours Wednesday.
The Electron Global Fund was up 2% for September, bringing its third-quarter return to -1.7% and its year-to-date return to 8.5%. Meanwhile, the MSCI World Utilities Index was down 7.2% for September, 1.7% for the third quarter and 3.3% year to date. The S&P 500 was down 4.8% for September, up 0.2% for the third Read More
Long term potential for Tesla
Tesla management is expected to address the concerns about the ramp of the Model X production and also delivery volumes early in January when they release the delivery number for the fourth quarter. Earlier this year, they started releasing their estimated quarterly delivery number within a few days of the end of each quarter long before the full earnings report is due out.
Galves expects Tesla to be able to allay fears about production and volumes in January, which he thinks will then cause investors to turn their attention from near term concerns to the EV manufacturer’s long term potential. He also believes next year will bring better than expected earnings per share and free cash flow.
Tesla to make Q4 delivery guide
Tesla expects to deliver at least 17,000 vehicles during the fourth quarter, which certainly sounds like a tall order, and investors are understandably skeptical because in order to do that, the automaker will have to increase deliveries by 46% quarter over quarter. Galves thinks this is achievable, however.
He sees next year as being “a much cleaner year,” with the biggest catalyst he sees as being “significantly higher earnings” and a reduction in cash burn. During the third quarter of this year, Tesla posted an annualized loss of $2.30 per share. The Credit Suisse analyst estimates that 36,000 incremental Model X units from here on out will drive an incremental $7 per share in earnings.
Tesla may greatly outperform expectation next year
This, in addition to the improving margin on the Model S, which will probably be offset by lower than expected growth in selling, general, and administrative expenses and research and development costs, could mean that Tesla ends up with $4 per share in earnings next year, Galves believes. By comparison, the consensus estimate is at only $1.86 per share. The analyst also believes Tesla can significantly lower its full year free cash flow burn to about $500 million.
Despite his optimistic look on Tesla’s prospects for outperforming expectations, he thinks even in-line results for next year could end up being “a substantial catalyst.”