3 Keys To Tesla Earnings As $35K Model 3 A Go: Low Ride, Ramp, View
Trading at a two-year low since last week, reeling from analyst target cuts and facing its Q4 earnings report after the close Wednesday, Tesla Motors ( TSLA ) stock rebounded more than 6% early Tuesday after guttering down 9% Monday and more than 7% Friday. The surge pared to a 0.18% gain for the trading day, and Tesla stock slipped about 2% after-hours. What’s ahead in Tesla’s fourth-quarter report? Here’s what to watch. 1. A Lowered Ride Several analysts have slashed price and other targets on Tesla ahead of the Q4 release, spurring some of the recent share declines. Tesla stock has fallen 38% this year, in a market now in correction on concerns about the world economy and falling oil prices. The S&P 500 has fallen 9%, Ford ( F ) 19%, General Motors ( GM ) 17%, Toyota ( TM ) 13% and the biggest stock of all, Apple ( AAPL ), 10%. Tesla holds a low IBD Composite Rating of 16 out of a possible 99, factoring in several metrics such as earnings growth and stock-price gains. With Tesla stock closing at 148.25 in the stock market today , the median long-term price target of analysts polled by Thomson Reuters stands at 282 and the average view slightly better than hold. But analyst opinions on Tesla vary drastically. Barclays cut its target to 165 from 180 Tuesday, with an underweight rating. Stifel analyst James Albertine, a long-term bull who rates Tesla stock a buy, said in a research report Sunday that “we see few catalysts to turn short-term bears bullish,” as Tesla concentrates on building its electric-car business (which requires “tremendous investment”) for the longer haul. Of 20 analysts polled, eight rate Tesla a hold, five underperform, four buy and three strong buy. That’s slightly lower than three months ago. How much do views on Tesla stock vary? StreetInsider reported on Tuesday that a Weiss, Harrington and Associates publication, Unit Economics, on Sunday re-initiated coverage of Tesla with just a 12 price target (and scathing commentary). That independent-research outfit, focused on energy, does not appear in the list of broker analysts tracked by Thomson Reuters. 2. Model X Ramp, Model 3 Plans One key to how investors view Tesla’s Q4 report and guidance is how production of the newly introduced Model X crossover SUV, with its falcon-wing doors, ramps up. Sales are still seen as very light vs. the Model S sedan. Both sell for north of $70,000. “Given management’s long-term focus, we suspect quality trumps speed with the new Model X,” Albertine wrote in his weekend research note. Tesla, with only two vehicles and a third on the way, “cannot afford major defects, recalls or further interruptions (bringing previously delivered vehicles in for service) in the same way that most OEMs (with far too many products, in our view) can announce recalls without suffering lost share.” Albertine expects that updated guidance may be lower than the 80,000-85,000 vehicles that Tesla has previously anticipated for 2016, “which could drive further sell-off in shares.” He also expects that management will deflect on cash-flow questions given the needs for ramping up the battery Gigafactory and the Model 3 sedan. “Will this matter once the Gigafactory is up and running and the Model 3 demonstrates it can be the (BMW) 3-Series killer bulls expect? Probably not,” he writes. “But it likely does not help valuation discussions near term.” @elonmusk $35k price, unveil in March, preorders start then. — Elon Musk (@elonmusk) September 2, 2015 After its luxury Model S and Model X, the design for Tesla’s smaller and more affordable — $35,000 — Model 3 is set for March, with pre-ordering beginning then, Tesla CEO Elon Musk said in September. A Bloomberg story Tuesday quoted Tesla spokeswoman Khobi Brooklyn as saying the company still plans a $35,000 price , before government green incentives. Those incentives could trim a buyer’s cost to about $25,000 in some places. Though details on how Tesla as a startup automaker will be able to achieve mass production with that price point — and eventually profit from it — remains to be seen, lowering the cost of batteries, via its Gigafactory, is one lever for that. 3. The View Thomson Reuters’ analyst poll calls for Tesla’s Q4 report to produce 10 cents earnings per share minus items, swinging from a 13-cent loss in the year-earlier quarter. Analysts see a $1.26 loss for 2015, then project EPS of $1.66 for 2016. Fourth-quarter 2015 sales are anticipated at $1.79 billion, up 64%, with 2015 coming in at $5.36 billion and 2016 at $8.58 billion. Over the last several days, average near-term projections have bounced back up — for instance, in Q4 EPS to a dime, after dipping as low as a view of 8 cents. But the longer-term analyst outlook has edged down. Tesla has interesting times ahead this year: That planned Model 3 unveil, for one thing. For another, scoping out some kind of partnership in China so it can set up a car manufacturing plant there. Last Tuesday, Tesla’s China blog announced a Model X debut for the Chinese market, and invited orders. In late January, Tesla CEO Elon Musk exercised options to buy and hold about $100 million more Tesla stock than he already had, while paying a hefty tax bill (and in effect diluting the stock outstanding). Analysts question how soon the Model 3 can roll off the assembly line. And there’s potential competition ahead from other automakers — such as GM’s long-range Chevrolet Bolt — and maybe at some point an Apple car. “We can’t overstate the importance of the March 29 Model 3 unveiling,” Pacific Crest Securities analyst Brad Erickson wrote in a Feb. 1 research note. RELATED: Self-Driving Cars On Ramp As Feds Tax Oil In New Obama Budget . CEO Elon Musk Adds Huge Tesla Stock Stake Ahead Of Earnings . With Tesla Earnings Ahead, Truck Could Follow Model 3 .