Analyst Says Risk Surrounding Tesla Model 3 Has Diminished

MAY 29 2017 BY ERIC LOVEDAY 45

An Evercore ISI analyst is now convinced that the Tesla Model 3 roll-out will be pulled off without a hitch.

Tesla Model 3 “release candidates” have hit the road for product validation

Analyst Arndt Ellinghorst has raised his target price for Tesla to $330 from $320 and says that:

“…we believe that an EBIT margin range of c12 to 15% is achievable in the long-term, once growth normalizes and SG&A and R&D ratios approach industry average. In other words, Tesla has the potential to achieve margins which are double those of US peers today.”

There’d been doubt on Wall Street that Tesla could roll-out the Model 3 on time, but analysts now seem increasingly convinced that Tesla can pull off the near-impossible.

As Motley Fool states:

“The analyst sees diminishing risks that the rollout of Tesla’s new Model 3 sedan will be a bust. In fact, assuming the rollout goes well, and projecting Tesla’s recent “3-year forward market multiples” into the future, Evercore thinks it’s reasonable to assume this valuation will hold steady as Tesla ramps production on its newest electro-buggy.”

Much of this change of heart in regards to the Model 3 roll-out comes after Tesla’s Q1 earning report in which Musk once again reiterated Tesla’s production goals.

Motley Fool explains:

“Model 3 vehicle development is nearly complete” and “on plan to start production in July.” Tesla expects to achieve production of “5,000 vehicles per week at some point in 2017, and … 10,000 vehicles per week at some point in 2018.”

“At some point” isn’t very precise, but even if Tesla can only crank out 5,000 per week for all of 2018, that’s still 250,000 Model 3s in that year alone. 500,000 doesn’t need to be achieved for us to consider Model 3 production a success. 250,000 would more than satisfy.

Source: Motley Fool

Categories: Tesla

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45 Comments on "Analyst Says Risk Surrounding Tesla Model 3 Has Diminished"

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SJC
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SJC

We may not see deliveries in significant numbers until the fourth quarter, but that is fine. They have kept the design simple.

Kosh
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Kosh

I’m fine with letting them work out all the kinks before we take delivery of ours. 😉

realdb2
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realdb2

If analysts are looking for a bust, look no further than the Model X. Elon Musk is in full sales mode on the S & X because he sees a huge drop in sales while people wait for that Model 3.

FWIW I think the Model 3 will be a huge success. When the history books are written on Tesla the Roadster, Model S, and Model 3 will all represent watershed moments. The Model X, not so much.

Paul Smith
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Paul Smith

What are you basing that on? One months sales?

Four Electrics
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Four Electrics

Model X sales are down in the US, but OK worldwide, so far. S sales are flat.

I do agree that Tesla is acting like the Model 3 will ramp slowly and with low initial margin, or at least that customers are acting like they don’t want to buy an expensive EV when you can get the same Tesla cache for less.

Pushmi-Pullyu
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Pushmi-Pullyu

Pushy’s Grammar Nazi head says:

I wish people would stop writing “cache” when they mean cachet.

Not just you, Four Electrics. I’ve seen this blunder repeatedly here on InsideEVs.

Jim Whitehead
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Jim Whitehead

Henry Ford made many pricey cars before the Model T, but almost nobody remembers them a hundred years later. The Tesla Model 3 is poised to become their Model T.

(Neil Armstrong is remembered as the first guy to walk on the Moon. Who remembers the second guy?)

A hundred years from now, who will remember compliance cars like the Bolt or copycat cars? The Tesla Model 3 may be remembered like the Ford Model T, as the first great car of its type, that was affordable to most people.

Mikael
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Mikael

“Buzz” Aldrin was number 2, but ask for number 3 and see people fail to answer. 😛

Most people don’t even remember poor Michael Collins who was the third guy in the first crew, the guy who had to stay in orbit while Armstrong and Aldrin went down in the Eagle.

Scott Franco
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Scott Franco

Buzz was mainly famous for forgetting the keys to the LEM and locking the door after their first EVA together. This was followed by a tense half hour with a coat hanger that was widely suppressed by NASA.

ffbj
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ffbj

Oops! I came up with Buzz too, almost immediately, then I read your question, and yeah could not, off the top of my head, get that one.
I knew the 7 at one time.

Dave86
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Dave86

Armstrong #1
Aldrin #2
Pete Conrad #3?

JayTee
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JayTee

The Bolt is actually first.

Pushmi-Pullyu
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Pushmi-Pullyu

The Bolt EV is actually “first” what?

Certainly not the first modern production PEV (Plug-in EV); that was the Tesla Roadster.

Certainly not the first truly mass produced PEV; that was either the Leaf or the Volt.

Certainly not the first semi-affordable long-range PEV to be produced in large numbers; that will be the Tesla Model 3.

Nope, GM is quite clearly limiting the production of the Bolt EV, very likely to little if any more than they need for the additional ZEV credits they need. I’ll continue to argue that it’s an overstatement to call it a “compliance car”, because it’s not being made in very limited numbers, it will be sold outside CARB states, and it almost certainly isn’t priced below its manufacturing cost (at least not on a per-unit basis) as a compliance car is.

Realdb2 is right; the Bolt EV will be nothing but a footnote in history. Unless Tesla drops the ball quite badly, the Model 3 is what will become famous as the turning point in the EV revolution.

Pushmi-Pullyu
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Pushmi-Pullyu

The second guy? You mean, Buzz Aldrin?

Now, if you asked the name of the third guy, the commander of the second Lunar landing… that I wouldn’t know without cheating by asking Mr. Google.

G2
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G2

Tesla will make good on the M3, that is granted, but you noticed these articles go from ‘Danger danger Will Rodgers’ a few weeks ago to this one saying ‘All is well’.
Does that meet the definition of ‘Dump and Pump’ stock manipulation?

floydboy
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floydboy

I believe the robot would actually say, “Danger, danger Will Robinson!” , but I get your point.

super390
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super390

Will Rogers said, “I never met a robot I didn’t like.”

ffbj
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ffbj

..that was so very special! +1

Pushmi-Pullyu
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Pushmi-Pullyu

“Does that meet the definition of ‘Dump and Pump’ stock manipulation?”

Why would any investment company make its stock price analysis publicly available, unless it was with the specific intent of either pumping or promoting dumping? I think it’s naive to suggest any of these companies are so altruistic.

I think it’s best to simply assume that every single stock “analyst” article you read on the Internet has the purpose of either pumping a stock, or promoting dumping it. I doubt there are many exceptions.

Real financial advisors tailor their advice to fit the needs of individual clients, and they charge for their services.

David Murray
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David Murray

Now that I’ve seen so many photos of pre-production models circulating around, I’m also convinced they are on track. I tend to believe Musk’s story about how the Model X was so delayed due to trying all of these new things. The Model-3 seems to have been designed for the purpose of being simple and on the fast track to high volume production. Even if they “only” sold 250,000 per year, that would actually be amazing considering all EVs and PHEVs combined last year only totaled 158,000.

Scott Franco
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Scott Franco

Comparing Tesla with GM:

Tesla:

30,000 Employees
83,922 Cars produced in 2016
2.7 cars produced per employee

GM:

202,000 Employees
8,400,000 Cars produced in 2010
41 cars produced per employee

As widely publicised, GM and Tesla now have similar stock caps.

It means Tesla has room to grow.

Robert Weekley
Guest

Tesla’s 30,000 employees ate distributed in Sales (Vehicles + Solar + Batteries), Solar Installations, Supercharging Station Research and Approval, Vehicle Service, and more, plus the usual admin jobs.

How many Tesla Employess in Fremont, would be a closer comparison. Isn’t that number just about 6,500 staff?

Shane
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Shane

I would take 2.7 Teslas over 41 GM clunkers any day.

Pushmi-Pullyu
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Pushmi-Pullyu

Scott Franco said:

“Tesla: …2.7 cars produced per employee

“GM: …41 cars produced per employee”

That’s a false comparison. Tesla makes a lot of its parts and sub-assemblies in-house; GM relies much more on suppliers. If you included the employees of those suppliers, the ratios of the two companies would be much closer.

Also, currently Tesla makes only “premium” cars, which have more parts (aside from the hundreds of parts in the ICEngine) than the average car GM makes. If you compared the number of GM workers it takes to make only their pricier cars, rather than the average for GM, the ratio would likely be closer.

Sean
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Sean

In addition, Tesla has its own sales staff instead of selling through dealerships, so you will also have to include the employees of all GM dealerships to make it equivalent

Pending
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Pending

Producing quantities of autos will be dependent on whether or not Musk delivers a Model 3 that people want to buy once they can physically see and touch it. If the car is a glorified golf cart (easily produced), Tesla could produce 500,000 a year and they won’t get sold.

So I am praying that Musk lives up to his promise of producing an exceptional car for the masses.

Null
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Null

For true comparison, you’d also have to include sales, and repair.

So add in all the dealerships too.

Paul Smith
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Paul Smith

All the dealer ships? They mostly sell through the internet, and repairs and maintenance are minimal. For repairs they are training and certifying local repair shops already in business.

Alonso Perez
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Alonso Perez

He meant for GM.

Daniel
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Daniel

But they’re not GM employees…

Warren
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Warren

I hope I am wrong. But I don’t see “the masses” going for a Model 3. The S was hugely popular, because it was the fastest, highest tech car available. By definition, a car for the masses won’t be that.

Warren
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Warren

What made the Model T a success was the fact that it was cheaper than anything else available, and the only car affordable by most people. There are many cars cheaper than the Model 3 today. No EV can be that, given current battery tech.

Four Electrics
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Four Electrics

+1.

Pushmi-Pullyu
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Pushmi-Pullyu

Thank you for that reality check. The Model 3 won’t be the “EV Model T”; the Everyman plug-in EV for the masses.

At best, that won’t come until some future date, with further reduction in battery prices. And as Warren quite correctly points out, Tesla simply doesn’t have the opportunity Ford did. Ford was moving into a mostly undeveloped market; Tesla is competing in a market already served by several large automobile makers, and one that is highly competitive.

Now, that’s not to say there isn’t room for Tesla to grow, quite a lot. All disruptive tech revolutions provide opportunities for new market leaders to emerge, as well as for established market leaders (such as Kodak and BlackBerry) to drastically shrink or disappear. But Ford captured, at one time and for several or many years, 90% of the automobile market. It’s not realistic to think Tesla will be able to do that.

Jim stack
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Jim stack

Add up life cycle cost for fuel and maintanance and the electrics are already less cost.

Nix
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Nix

The Model T wasn’t actually sold to poor people. Poor people still walked, rode trolleys, bicycled, or rode horses or used horse/wagon for years later.

Model T buyers were better off than average, just like Model 3 buyers will be.

Just like with ICE cars, it will be used and CPO Model 3’s that will filter down to the larger mass market. That’s just how it has always worked.

JayTee
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JayTee

Who said anything about poor people?

Nix
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Nix

The “Masses” were poor. The middle class as we know it now did not exist when the Model T went into production.

Even Model T factory workers were substantially better paid than the “masses”.

It’s not my fault if people talk about the “masses” 100 years ago, and don’t understand that the modern middle class was a product of the 1950’s-1970’s.

JustWilliamPDX
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JustWilliamPDX

All the 3 needs to do is be better than the “compact sports sedan” competition, which “the masses” purchase plenty of. If it does so, it should garner significant market share. Having the S to serve as a halo vehicle is a great advantage.

Tim
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Tim

I paid $40k in 2007 for one of first Ford Escape Hybrid because of the new technology at that time.

Compare that to the 3 reservations I have for the model 3 and the state of art technology that will be starting at $35,000-7,500=$27,500.

Model 3 is not a glorified Golf Cart, given all the technological advancement 10 years after the Ford Escape. This car surpasses the the Model T, for the impact it will have on mankind.

Imho

Bob Nan
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Bob Nan

Ford Escape Hybrid is still a much bigger vehicle than Model 3 or any sedan for that matter.

It’s a robust vehicle and can easily go 200,000 miles and that’s why many Taxis use it. So don’t worry and enjoy your Escape-H which is still a greener car compared to other similar crossovers of that size.

But electric cars are way more energy efficient and nothing can be done about it.

Bob Nan
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Bob Nan

All delays with Model X has got to do with Falcon doors and the towing capacity which were unnecessary.

Luckily Model 3 has simple doors and that’s why they are able to roll out earlier.

I still wish they produce slowly at the rate of 200 / month in the 1st month (10/day) and then doubling to 400, 800, 1,600 in the next 3 months and finally reaching 6,400 by December which also happens to be the best selling month of the year.

Pushmi-Pullyu
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Pushmi-Pullyu

All of them? Elon said the 2nd row “captain’s seat” chairs were actually a harder engineering challenge.

What I think is unfortunately overlooked in all these contrasts & comparisons between start of Model X production and start of M3 production is this: Just how hard is Tesla trying to get the new model into production?

By all the evidence I see, Tesla wasn’t trying hard at all to get the MX into production. Jay Cole said Tesla didn’t even solicit bids/designs for the falcon wing door actuators until a very few months before production actually started, so problems with a new and complex mechanism were almost guaranteed. If Tesla was limited by battery supply, then it made sense to keep making and selling as many of the MS as possible, rather than a new model which, because it was so new, cost Tesla significantly more per unit to build.

I won’t claim it as fact, but plenty of evidence points in the direction of Tesla not trying very hard to get the MX into production. By contrast, Tesla is trying very hard to get the M3 into production ASAP!

Ron M
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Ron M

Well the analysts are now agreeing with me maybe I should be an analyst.
I’m a little confused though about the battery automation process where there spending 216 million to automate the batteries. If they just signed an agreement for the equipment last week. How soon can this be put into production. Do they already have a working prototype or are they at the design stage. I suspect it’s well on the way and it was simply a matter of signing the contracts before work on actually installing the automation equipment begins..

Pushmi-Pullyu
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Pushmi-Pullyu
As with all publicly released stock “analyst” reports, we should ask two questions: 1. What is the motive of the person or company releasing the report? Generally, this will be to promote stock sales; either “long” or “short”. The so-called “analysis” will generally be written as an advertisement for one position or the other, rather than a true neutral and objective analysis. 2. Does the so-called “analysis” make sense? Here, the analysis is highly positive, so clearly it’s a “pumper” rather than a “dumper” advertisement. Does it make sense? Well, it’s certainly true that all the reports we’ve seen show that Tesla is moving very aggressively and with real purpose to ensure that it can and will start manufacturing the Model 3 as close to the target date of July 1 as possible, and that it will ramp up production quickly and aggressively toward its goal of ~400,000 Model 3’s per year, within… what was it, two years after start of production? Of course, that doesn’t mean that Tesla will succeed; Murphy’s Law may still prevail here. But the obvious — and by now, over-used and worn-out — comparison to the delayed and infamously problematic Model X rollout appears less… Read more »