Tesla Model 3
Tesla Model 3 missed production targets, among other concerns, have some Wall Street analysts taking notice.
Tesla shares are still up 65 percent this year and only traded down 0.9 percent at the end of last week, and 1.1 percent down for the week as a whole, but JP Morgan is beginning to change its tune. Previously, the firm has its price targets for Tesla shares at $200, and now that has been dropped to $195, which is 45 percent below the stock's recent closing price.
JP Morgan predicts that the Silicon Valley electric carmaker will continue to have Model 3 production issues following third-quarter results. The automaker was able to deliver 26,150 electric vehicles overall between July and September (which is actually above Wall Street analysts' projection of 25,680). However, the analysts' estimates included 1,260 Model 3 vehicles. Tesla only delivered 220 and produced 260 after guiding to production of 1,630+. JP Morgan analyst, Ryan Brinkman, shared in a note to clients:
Elon Musk with one of the first production Tesla Model 3 vehicles at the initial handover event.
"deliveries of Model 3 vehicles significantly underwhelmed relative to both management guidance and our own delivery expectations. Management cited production bottlenecks as the primary driver of the lower than expected deliveries of the newly launched Model 3 vehicles, furthering our concerns that significant execution risks exist associated with the roll-out of the Model 3 that seem insufficiently reflected in current valuation."
Additionally, JP Morgan has cut its fourth-quarter Tesla Model 3 delivery estimate in half. Earlier, the firm had projected 30,000 deliveries in the fourth quarter of 2017. Now, it's forecasting 15,000 (which still may be quite steep with all things considered), perhaps also feeling the pressure of other firm's lower numbers, Oppenheimer recently forecast Model 3 deliveries for 2017 combined at 3,005.
Further, the firm is concerned about Model 3 profitability due to the current situation and timeline. Brinkman noted:
"While the difficulties in ramping the vehicle Model 3 could very well prove temporary, we do wonder if they could hint at structurally lower profitability for the vehicle on a go-forward basis (for example if the vehicle were not as easy or simple to manufacture as intended), prompting our concerns about margin.
We worry that if the vehicle proves structurally more expensive to manufacture, that in order to preserve the targeted gross margin, Tesla may need to increase the price of the vehicle to consumers, with negative implications for demand."