Goldman Slams the Brakes on Tesla Stock (TSLA)

Tesla's new delivery report wasn’t pretty, but it doesn’t dramatically change the company's long-term growth prospects nor the stock's upward trend if market conditions remain positive. Yet, Goldman Sachs thinks the most valuable car company in the US is in for a rude awakening.

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Tesla‘s (NASDAQ:TSLA) stock dipped more than 3% to $331.28 in early morning trading Tuesday after the company said it fell far short of its third-quarter Model 3 (M3) production numbers. By end of day, however, TSLA was up 1.94% to $348 and change.

The upstart electric car-maker was quick to point out in a press release that there are “no fundamental issues” with its first mass market car or the supply chain, and that these issues, including the manufacturing bottleneck ones are near-term in nature.

While there is no denying Model 3 production was a complete miss – overall Tesla delivered 26,150 vehicles and just 220 Model 3 sedans in Q317, when management had projected 1,500 earlier – the fact is, this is only a slow rollout of the company’s first volume production vehicle and one that when seen in the grand scheme of things should, as Loup Venture’s Gene Munster points out, fundamentally have an “immaterial” impact to Tesla’s overall long term model.

Additionally, both the Model X and Model S, which in the past have gone thru sub-300 vehicle delivery quarters, are currently doing just fine production-wise. Out of the total number of vehicles Tesla delivered in the third-quarter, 14,065 were Model S, and 11,865 were Model X, making the quarter an “all-time best” for both of those models. So, there is no reason why Model 3 should not follow a similar trajectory.

In fact, Munster is confident that while “Model 3 production will largely be a guessing game over the next few quarters, and could produce future disappointments”, M3’s “value will stoke demand for the next several years.” It is also important to note here that Tesla has over half a million net reservations for its recently launched model and that until August 2, a time that coincides with Tesla’s Q2 earnings release, net reservations since the final Model 3 unveiling had been increasing, mind you, “With no advertising, paid endorsements or guerrilla marketing campaigns….” at a rate of over 1,800 per day.

Munster, previously of Piper Jaffray and well-known for his accurate predictions about Apple (NASDAQ:AAPL), predicts a “breakout” in fiscal year 2019 with 359.000 Model 3 deliveries.

Goldman Sachs’ David Tamberrino on the other hand, in a note to clients Tuesday was of the view that Tesla’s Model 3 production numbers will be slower than expected. The analyst reaffirmed his “Sell” rating for TSLA and lowered ticker’s six-month price target by ten points to $200 a share, a nearly 40% expected nosedive from the stock’s current level.

Again here, nobody is denying that the Model 3 launch curve has significantly undershot the company’s production targets, however, it is important to recognize that when it comes to Tesla’s first volume production vehicle, which is a critical component of the company’s ambition to become the iPhone of the auto industry, Elon Musk has clearly stated he expects to ramp M3’s production to 10,000 vehicles per week by the end of 2018. That’s 10k from 260 vehicles currently being produced. If this isn’t enough to convince Wall Street the company will be able to gradually but successfully manufacture a mass market car, don’t know what is. And for that very reason, Musk warned Tesla’s shareholders not to pay much attention to early production numbers when he spoke with them after Q217’s results.

“I would simply urge people to not get too caught up in what exactly falls within the exact calendar boundaries of a quarter, one quarter or the next, because when you have an exponentially growing production ramp, slight changes of a few weeks here or there can appear to have dramatic changes,” he said.

At last check, Tesla stock was trading up $0.49 to $355.50. The name is up more than 60% year-to-date versus S&P’s 13 percent return through Wednesday.

Disclaimer: No current position held on equity.

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About Ari Haruni 145 Articles
Ari Haruni is the Co-Founder & CEO of Wall Street Pit.

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