With all the controversial headlines surrounding CEO Elon Musk, it has almost been forgotten that Tesla (TSLA) has finally been turning a profit. The EV pioneer surprised many when it followed 4Q19’s swing into the green with another beat in its recent 1Q20 report.
Following an investor relations meeting with Tesla, Deutsche Bank’s Emmanuel Rosner noted, “We found Tesla’s message to be positive, reiterating that order backlog for its vehicles continues to grow due to limited ability to produce vehicles currently, and that its pace of capacity expansion will be the main driver of volume growth over the next few years.”
Model 3 production rates in China have been upped from 150k to 200k a year with the goal of producing 4k a week, firmly in the company’s sights. Holding production back was a reliance on battery packs – previously shipped from Reno. The cells are now sourced locally from LG and by the end of the year Tesla anticipates China Model 3 components will almost all be localized.
Tesla has indicated that due to increasingly strong demand in Q1, deliveries were on course to reach an all-time high – outpacing even the 112k units delivered in 4Q19 – until COVID-19 bought production to a standstill. With the backlog of orders for current models, the biggest in the company’s history, Tesla believes it has “a strong pipeline of deliveries regardless of near-term conditions.”
Following Musk’s Tweet storm, in which he vowed to move Tesla’s California based Fremont factory elsewhere if not permitted to resume operations, local government has given Tesla the go ahead to restart production (albeit in a limited capacity).
“While management provided few details about its 2Q/2020 outlook, it believes Fremont production can ramp back up very quickly given its experience in China and that the supply chain is already coming back online,” Rosner summarized.
Despite the positive takeaways, Rosner maintains an $850 price target on Tesla shares, which implies a modest upside of 6%. With limited upside potential, the analyst rates TSLA a Hold. (To watch Rosner’s track record, click here)
When considering Tesla’s prospects, the Street takes a similar view. A Hold consensus rating is based on 8 Buys, 9 Holds and 10 Sells. With an average price target of $603.58, the analysts project downside of 25%. (See Tesla stock analysis on TipRanks)
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