Tesla Badly Needs Profits, Not Production

Tesla Inc (Nasdaq: TSLA) has taken a lot of heat on Wall Street for its inability to hit its Model 3 production targets. Unfortunately for Tesla bulls, the company still has a lot to prove even if it gets Model 3 production back on track in the first half of 2018.

According to CFRA analyst Efraim Levy, Tesla will likely finally meet its latest Model 3 production target of 5,000 vehicles per week by the end of the second quarter. Tesla CEO Elon Musk originally said the company would be producing 5,000 vehicles per week by the end of December 2017. Instead, Tesla delivered just 1,550 Model 3s in the entire fourth quarter. Tesla has since bumped its 5,000 per-week target back twice, first to the end of the first quarter and then to the end of the second quarter.

CFRA also expects an impressive 50 percent increase in Tesla’s revenue in 2018. Levy says manufacturing efficiencies will also likely improve Tesla’s margins. Finally, he says Tesla appears to be in no immediate need for additional funding for the Model 3 ramp, but the company could require additional financing for its international Gigafactory expansion plans.

In the near term, Tesla bulls may finally get the chance to celebrate a successful production milestone in the second quarter. However, Levy says Tesla stock is still overpriced regardless. CFRA estimates Tesla will report a full-year 2018 earnings loss of $6 per share and will generate $2.50 in EPS in 2019. At Tesla’s current share price, that estimate represents a forward price-earnings ratio of about 134.

“Our valuation factors in the rapid acceleration of profits we expect as TSLA soon ramps up production of its Model 3 and the unusual investor support TSLA receives despite repeated missed deadlines,” Levy says. “It is very hard to find a way to get me enthused about Tesla shares at current levels.”

Other analysts even remain skeptical of the latest Tesla production targets. After Tesla’s most recent earnings report, Oppenheimer analyst Colin Rusch said he does not trust any promises Musk makes related to Model 3 production.

“We discount what he says pretty substantially,” Rusch said in an interview with CNBC. “We expect them to have ongoing [production] problems.”

CFRA has…

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