(Bloomberg) -- Demand for Tesla Inc's Model 3 sedan has been steady in Europe, and should help offset some weakness seen in China, Wedbush analyst Daniel Ives wrote in a note.
The biggest investor concern about Tesla this year has centered around the demand for its cars. While strength in Europe may allay some of the worries, the analyst said he was not fully convinced yet.
“Europe demand thus far is a positive development for Tesla but it does not change the broader demand and profitability worries we continue to have on the story,” Ives said. Unless the company manages to sell its higher-margin self driving and other software upgrades along with the low-priced Model 3s, “it will be a major challenge for Tesla to ramp its business model and gross margin profile in line with long term targets and therefore show profits on an ongoing basis.”
Sales of the company's older and more profitable vehicles, Model S and X, continued to be sluggish and will drag down margins, Ives said.
In the U.S., demand has flattened out after a strong end to the second quarter, and Tesla would need to see strong September order flow to hit its aggressive third-quarter guidance, the analyst said. CEO Elon Musk had said he was aiming to post a profit in the third quarter as the company focuses on delivering more cars, expanding capacity and generating cash. The company delivered 95,200 cars in the three months ending in June.
Tesla shares rose 1.6% pre-market Thursday, to $218.84 each. The stock has lost 35% this year, while the Nasdaq 100 has added 20%.
Read more: Tesla, China Demand Lull Seen Adding More Pain for Car Suppliers
To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Courtney Dentch
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