At this point, Tesla Inc (Nasdaq: TSLA) investors are tired of the word “bottleneck.” Tesla says the company will soon be past its Model 3 production bottleneck issues, but analysts say finally getting its Model 3 production on track is just the first test Tesla must pass.
Bernstein analyst Toni Sacconaghi recently looked into whether the Model 3 production bottlenecks Tesla has been dealing with will continue to plague the company as it scales its global business. According to Sacconaghi, there are two areas of potential supply-demand bottlenecks for Tesla — obtaining the metals used in electric car batteries and producing the batteries themselves.
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Sacconaghi says any minor bottlenecks in battery commodities and production should have minimal impact on Tesla in the long run and could even serve as a relative advantage if other legacy automakers struggle to follow in Tesla’s footsteps. Tesla has more metal supply pricing power than competitors, and it already controls its own battery production. Other companies may have difficulty clearing these scaling hurdles.
Still, Sacconaghi says Tesla has a lot to prove, even if it can finally start hitting its Model 3 production targets. Tesla CEO Elon Musk previously said the company would be producing 5,000 Model 3 vehicles per week by the end of 2017. Tesla has since moved its 5,000-per-week target back twice, first to the end of the first quarter and then to the end of the second quarter of 2018.
“If Tesla cannot chart a plausible path to profitability [and sustainable cash flows] with the Model 3, then investors may balk at providing further liquidity,” Sacconaghi says. “And Tesla’s capital needs remain enormous: To achieve its own long-term revenue projections, Tesla would likely have to spend nearly $60 billion in capex by 2027 to build about 400GWh of battery capacity and tooling for over 3 million vehicles.”
CFRA analyst Efraim Levy says even if Tesla hits its production targets and transitions from an estimated $6 per-share earnings loss in 2018 to $2.50 in positive EPS in 2019, the stock is still too expensive.
“It is very hard to find a way to get me enthused about Tesla shares at current levels,” Levy says.
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Bernstein has a “market-perform” rating and $265 price target for Tesla. CFRA has a “sell” rating and $300 target for TSLA stock.
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Tesla Still Has Plenty to Prove originally appeared on usnews.com
