Tesla Inc (TSLA) stock sold off by more than 5 percent last week ahead of the company’s unpredictable third-quarter earnings report expected on Wednesday. Investors are bracing for what will likely be a difficult quarter or two after Tesla reported it had fallen behind its production schedule in September.
However, Evercore ISI analyst George Galliers says Tesla’s third-quarter problem could quickly turn into a three-year problem if the company doesn’t get back on schedule.
Tesla has said its production delays are only temporary, and Galliers remains optimistic about Tesla’s prospects as a company. At the same time, he has lowered his Model 3 production targets through 2020, suggesting the hangover from the company’s production struggles could last for years.
In September, Tesla produced 260 Model 3s, well short of its target of 1,500. Tesla has said it would be producing Model 3s at a pace of 20,000 per month by the end of 2017.
Evercore ISI has lowered its 2017 Model 3 production target by 20,000 vehicles and lowered its full-year revenue estimate by 5.5 percent. In addition, the firm has lowered its 2018, 2019 and 2020 Model 3 production estimates by 8,000 units, 10,000 units and 7,000 units, respectively. ISI Evercore has also reduced its annual revenue estimates by between 5.8 percent and 6.9 percent through 2020.
Galliers says Tesla stock is difficult to value given all the uncertainty surrounding the company, and there is meaningful downside risk to the stock.
“History suggests that the market is valuing Tesla on sales, with three-year forward [enterprise value-sales] of 2x proving one of the most consistent metrics,” Galliers says. “Applying this to our numbers would result in a Tesla share price of $284, which is not supportive to the stock today.”
While the company’s earnings report will provide some much-needed clarity, Galliers says…
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