Tesla Motors Inc has gotten killed since the beginning of the year, and although the stock is starting to come back, it’s not yet enough to erase the year-to-date decline and remains down by about 11%. Today the stock was boosted by an upgrade from Baird analysts, who see challenges with the Model X that are similar to those the automaker tackled with the Model S, although it may be better equipped to deal with them.
Also the firm’s analysts point out that short interest in Tesla is so high that the Model 3 unveiling or just about anything else could serve as an upward catalyst.
Maverick Fund was up 49.9% for the first quarter, while Maverick Levered gained 52.5%, and Maverick Long Enhanced gained 1.7%. Maverick Long gained 6.3%, while MFQ Neutral was down 5.1%. Q1 2021 hedge fund letters, conferences and more The first quarter was the Maverick Fund's strongest quarter ever, driven mostly by the performance of Coupang, Read More
Still concerned about the Model X
Most firms that cover Tesla Motors are concerned about the pace of ramping Model X production, and Baird analysts Ben Kallo and Tyler Frank are no different in this respect. They do note, however, that the automaker is “more mature” now, which means that it has handled similar production ramping problems before but successfully beat them. Further, they think these concerns have become overblown, and they remain confident in the company’s ability to not only ramp production but also boost margins.
They noted that when Tesla Motors started producing the Model S, bears said it couldn’t be produced economically, although the automaker’s non-GAAP automotive gross margin reached 25% in the fourth quarter.
Tesla Motors doesn’t need capital
The Baird team doesn’t think Tesla will need to raise capital over the “next few quarters,” unlike some other firms that are expecting a capital raise. Management has said they don’t need to issue more shares this year because of the asset-backed leasing and bridge financing access, although they could “opportunistically” raise capital, said Kallo and Frank.
They also believe that Tesla Motors’ battery cost reductions are running ahead of schedule. They estimate costs at $150 to $200 per kilowatt-hour, which is much lower than the $350 estimate derived from a survey conducted by Bloomberg New Energy Finance in the first half of last year. The Baird team expects the automaker to hit its target of less than $100 per kilowatt-hour “in the intermediate term” as it ramps production at its gigafactory.
Continually cutting battery costs will make it possible for the Model 3 to be produced with “healthy” margins while also investing in “vehicle aesthetics and performance,” said the analysts, which should make the car more attractive than those made by competitors.
Short interest sets Tesla Motors up for a climb
The Baird analysts see the introduction of the Model 3 and first quarter delivery announcement as possible catalysts in light of the high level of short interest in Tesla Motors right now. They noted that interest is currently at about 34.7% of the float and has climbed 649 basis points since December, although they add that it could have fallen since the automaker reported its fourth quarter earnings.
They also think Tesla Motors will reveal the number of initial reservations it receives for the Model 3 quickly, possibly in as little as 48 hours after the introduction or at least by the end of the year. They expect reservations to beat estimate.
Shares of Tesla Motors climbed by as much as 3.2% to $214.14 during regular trading hours today.