Tesla has been sitting on hundreds of thousands of preorders for the Model 3 since it started taking reservations for it, but will buyers be pleased with their electric car when it arrives? It definitely depends on who you ask, given the opposite reactions two analysts had after taking a Tesla Model 3 test drive.
“Relatively poor” and “compelling offering” from Tesla Model 3 test drive
Bernstein analyst Toni Sacconaghi, Jr. had the opportunity to take a Tesla Model 3 test drive and found the car to be “a compelling offering” overall. However, the phrase “relatively poor” was the one that captured many of the headlines.
Sacconaghi said in a note to investors that he believes the Model 3 will probably ignite interest in electric vehicles in general, and interestingly, he sees the Model 3 as “more attractive” in appearance than the more expensive Model S. This causes him to be especially concerned about the possibility of “meaningful cannibalization.” He noted that the long-range Model 3 is $30,000 less than the entry-level Model S and has a range that’s almost 20% longer.
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Concerns about gross margins and “fit and finish”
He added that cannibalization is unlikely to be a major financial issue for the automaker in the long term, although over the next 12 to 18 months, it could pressure its cash flow and margins. Further, his Tesla Model 3 test drive didn’t ease his concerns that the company will struggle to reach a 25% gross margin on the car in the near to medium term.
The Bernstein analyst also described the “fit and finish” on the two Model 3 demo cars that he saw as “relatively poor,” although he doesn’t think it would impact or be noticed by potential buyers. The issue did, however, make him concerned about the overall build quality of the first Model 3 cars rolling off the production line. Among the issues Sacconaghi noticed at his Tesla Model 3 test drive were slightly misaligned glass roof pieces, wide gaps in the body panels, snug rubber window trim, and misaligned seams.
He noted that poor quality could damage the Tesla brand and overwhelm the automaker’s network of service providers. This is certainly something the company can’t afford to do, given how many times we’ve heard complaints in the past that Tesla’s service network takes months to complete repairs.
Bernstein has a Market-Perform rating and $265 price target on Tesla stock.
Glowing review of a Tesla Model 3 test drive
Guggenheim analyst Robert Cihra had a different take on his Tesla Model 3 test drive. He describes the car as a “true” Tesla, but with a lower price tag. He believes that the car “delivers” but notes that Tesla itself now needs to ramp up production so it can actually deliver the hundreds of thousands of cars prospective buyers have preordered.
Interestingly, he didn’t see anything “particularly unmanufactureable” about the car, as Barron’s quotes him. He wrote off the early production problems as being Tesla’s attempts to pursue “much more automation.” Cihra has a $430 price target and a Buy rating on Tesla stock.
According to CNBC, other Wall Street firms were also invited to take a Tesla Model 3 test drive this week. RBC and Goldman Sachs both reportedly received invitations and offered positive reviews.
Tesla Model 3 test drives offered this weekend
It seems Tesla is trying to battle all the neutral-to-negative press by offering more Model 3 test drives. CNBC viewed an invitation that was sent to UBS’s clients and prospective clients, and it targets institutional investors. The Tesla Model 3 test drive event will be a closed-door meeting where photos and videos will be barred. The event will be held at the automaker’s Red Hook location in Brooklyn.
Tesla stock was little changed in intraday trading on Friday as it hovered around $303.16 per share.