Tesla's `Better Than Feared' Model 3 Production Revs Up Stock

(Bloomberg) -- The past few weeks have been tough for Tesla investors, with a string of bad news hammering shares and an overwhelming majority of analysts warning of a poor show in first-quarter delivery numbers.

While the carmaker did fall behind on its self-defined production goal of 2,500 Model 3 units per week, as well as average estimate for deliveries during the quarter, analysts said the performance wasn't “as bad as feared.” The market reflected the same sentiment, with Tesla shares gaining as much as 8.3 percent on Tuesday, in the biggest intraday jump since February 2016.

Loup Ventures, Gene Munster

“While Tesla missed their original Model 3 production goal, the miss was not as severe as investors were expecting.”

“We expect Model 3 production to double again in the Jun-18 quarter to 4,000 vehicles per week.”

“While we share some of the same frustration, this hyperfocus on missing high, self-imposed production targets causes investors to miss the bigger story, which involves the company nicely ramping production of a car that is exceptionally difficult to produce and could potentially usher in global adoption of EVs.”

Cowen, Jeffrey Osborne

(Underperform, price target $200)
“The stock's recent performance suggests Tesla's predictions may be losing credibility within the financial community.”

“We note TSLA has indicated it does not need to raise capital in the past and still raised capital.”

"We continue to believe that the company's current plans for the Model Y and the factory in China to meet its 2020 goals will require additional capital to fund the capex and equity/ debt needs over the next 18 months.”

“Forecasting a $3 billion equity raise in 4Q18 and another $2 billion equity raise in 4Q19 to keep the company above $1 billion in cash.”

KeyBanc, Brad Erickson

(Sector weight)
“Tesla's 1Q delivery report was better than feared, which should drive relief in the stock.”

Struggling with investor perceptions of Tesla's “innovative superiority in the areas of manufacturing, batteries, software, AI, and competition.”

“If and as the number continues to climb to something approaching 4,000-5,000, we think Model 3 gross margins should turn profitable, which doesn't indicate it will meet long-term targets, but should prove to be better than the more bearish expectations of the car being EBIT negative, even at scale.”

Jefferies, Philippe Houchois

(Hold, price target $250)
“Expectations nosedived in the past few days and, whilst still a miss, numbers don't look as bad as feared.”

Says concerns on capital raise unlikely to go away near term. Continues to forecast that $2.5 billion to $3 billion will be needed this year and expects refinancing risk to remain high until Tesla show Model 3 volume approaching 10,000 units/week and gross margin improving.

Consumer Edge, James Albertine

(Overweight, price target $385)
“We view the production rate of roughly 2,000 Model 3 units/week around the end of Q1 as a positive relative to our sense of investor expectations.”

Says the news of “stable reservation counts is in-line with what we learned from management conversations in mid-March. Given the high-profile nature of TSLA's production delays and the plausibility of consumers choosing to wait for options like all-wheel, we do not believe this fact raises demand concerns at this time.”

Believes Models “S and X are holding up rather well or at least less bad relative to broader industry weakness.”

Baird, Ben Kallo

(Outperform, price target $411)
Believes the company could “opportunistically raise capital, dependent on market conditions.”

Says Tesla has “access to other sources of capital, which shorts may be overlooking, such as potential investments from Tencent or other parties.”

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Will Daley

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