Tesla stock was little changed on Monday after analysts at Deutsche Bank boosted their price target. Last week Wall Street spent a lot of time evaluating the EV maker’s latest capital raise, which ended up being less than what analysts were mostly expecting. Bulls see that as meaning that Tesla is doing well because it doesn’t need as much cash as they were expecting, while bears predict that the company is just going to run out of money as it tried to ramp production on the Model 3.
But now we’re hearing that some “release candidates” for the Model 3 are already being built, suggesting that maybe the EV maker is ahead of schedule… for once. Then again, this could be a disaster in the making, according to one ultra-bear who suggests that Tesla may be moving toward bankruptcy.
Tesla stock price target to $240
In a research note dated March 20, Deutsche Bank analyst Rod Lache boosted his price target for Tesla stock from $220 to $240 and reiterated his Hold rating after incorporating the $1.365 billion capital raise. After including the capital raise, he now estimates that the company will end this year with $1.8 billion in cash, which he described as “a significantly more comfortable liquidity cushion.”
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He’s assuming that Tesla will build 22,000 Model 3 cars this year, with 20,000 of that total coming in the fourth quarter. He’s estimating 250,000 Model 3 cars for next year, which he notes may appear high to some but adds that the company aims to end this year producing 5,000 cars per week and next year producing 10,000 per week.
He believes the EV maker is targeting a 25% gross margin for the Model 3 with 90,000 to 100,000 cars per quarter, a level which matches free cash flow breakeven, he adds. He also believes Tesla will reach cash flow positive next year.
Model 3 “release candidates” nearly ready
Tesla management said on a recent conference call that they were building the “beta prototypes” for the Model 3 now ahead of the July start for production. Electrek reported last week that the company held a conference call with just a very few select investors, and on that call, CEO Elon Musk reportedly said that he sees an 80% chance that they won’t need another capital raise this year. If they do need more capital, he apparently said they’re planning “a revolver or asset-backed line or warehouse line.”
He also reportedly said that the Model 3 cars they’re currently building are “almost entirely built with production tooling,” so they’re referring to them as “release candidates” rather than “beta prototypes.” Further, Musk said the quality of the Model 3 candidates is much higher than that of the early Model S and Model X cars.
Will Tesla declare bankruptcy?
At first, this all might sound good, but as Seeking Alpha contributor EnerTuition notes, the executive was also reported to have said that they’re planning to skip the beta testing phase for the Model 3 and just straight to release candidates. The writer warns that skipping “key steps in [the] traditional automotive testing process” probably isn’t a good idea.
He writes that based on what Musk said, you might think automakers with a “much better reputation” would also skip over beta testing to get their cars onto the market faster. However, other automakers don’t do this.
“If Toyota, which tops the charts on reliability and durability, needs to test then what makes a company like Tesla with sub-par reputation in reliability and serviceability think that they can skip testing and go straight to production?” he ponders. “We suggest two answers: staggering ignorance and hubris.”
The Seeking Alpha contributor feels that the company’s chances of declaring bankruptcy have increased “exponentially” with this latest capital raise because he doesn’t think it will be enough. In fact, he sees a “better than 50% chance Tesla will be reorganized in the next 12 to 24 months.”
Shares of Tesla stock were little changed on Monday as they hovered around $261.68.