Tesla Motors Inc (TSLA) On Track To Meet Goals But Risks Still High: Analyst

Tesla Motors Inc (TSLA) On Track To Meet Goals But Risks Still High: Analyst
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Tesla Motors Inc (NASDAQ:TSLA) jarred Wall Street by moving up its target year for producing 500,000 cars annually by two years to 2018. Even now, there’s a lot of debate about whether the automaker can produce as many cars this year as it says it will, but one analyst believes it is on track to do so. However, he’s not convinced enough that Tesla can overcome the myriad of challenges it faces because he has chosen to maintain his Sector Weight rating on its stock.

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TSLA on track for this year

Along with the last earnings report, Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk said they intend to deliver between 80,000 and 90,000 vehicles this year, which sounds like a tall order, especially since they missed their first quarter target, although only by a little. Today Pacific Crest Securities analyst Brad Erickson said that after his most recent tour of the automaker’s factory in Fremont, Calif., he believes that it will be able to deliver on that promise.

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He said currently the company is hitting its benchmarks for run rates on the Model X and that Investor Relations VP Jeff Evanson indicated that the production ramp is now in line with their second quarter expectations. This is huge, considering all the problems Tesla Motors Inc (NASDAQ:TSLA) has had with ramping production of the complex crossover vehicle. Erickson added that Evanson also appeared “more confident” on the issue of quality problems with the Model X, which is also very important.

However, the Pacific Crest analyst emphasized that in order to meet its high delivery targets for this year, Tesla will need a steep ramp in the second half of the year. Part of its ability to meet the target depends on whether the automaker can end the second quarter producing 2,000 vehicles per week, he explained. If Tesla can do this, he doesn’t think it would have to increase production much more in terms of vehicles per week to meet the midpoint of its targeted range.

Can Tesla boost investor sentiment?

Erickson kept his Sector Weight rating because he’s still assuming “a more-achievable longer-term production ramp and profitability versus the company’s lofty targets.” He said if Tesla is able to execute well in the near term, it would go a long way toward boosting investor sentiment.

He also explained that investors might become more optimistic if it begins to look more like management’s ambitious targets are achievable. Looking further out, he’s concerned about the size of possible cash burn, and he thinks the plan to deliver 500,000 vehicles in 2018 may be “overly ambitious and carriers with it extreme financial risk if production missteps were to occur again.”

Tesla Motors Inc (NASDAQ:TSLA) shares are up 0.8% at $234.30 as of this writing.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.
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