Tesla Inc (Nasdaq: TSLA) investors who were disappointed with the company’s lackluster Model 3 production in the third quarter may be in for another letdown when the company announces its fourth-quarter delivery numbers.
After performing his most recent round of checks with 18 Tesla dealers throughout the country, KeyBanc analyst Brad Erickson reduced his Model 3 deliveries target for the fourth quarter by two-thirds and says Model 3 disappointment will likely continue to weigh on Tesla stock.
According to Erickson, Tesla will likely announce delivery of about 5,000 Model 3 vehicles in the fourth quarter. KeyBanc had previously forecast 15,000 deliveries.
While the light fourth-quarter numbers may disappoint Tesla investors, Erickson says the stock won’t react too negatively to another missed target.
“We think bullish investors in particular remain more focused on that the car is being produced with minimal defects and that consumer reviews and response are favorable,” Erickson says.
Erickson says gross margins on the Model 3 will be the most critical metric for Tesla as production ramps up, and investors won’t get a clear picture of margins for at least another couple of quarters.
Earlier this month, Morgan Stanley analyst Adam Jonas said Tesla’s aggressive Model 3 production ramp will actually relieve some pressure on the company’s often-criticized balance sheet over the next couple of quarters. “While the pace of the working capital improvement is largely temporary in nature, we believe the stock market will be forced to recognize the potential de-stressing of the balance sheet,” Jonas says.
Unfortunately for Tesla bulls, Jonas says the impact will only be temporary, and Erickson says Model 3 margins will ultimately disappoint the market.
“We think gross margin will not ramp in line with expectations, and we are cautious on Model 3 demand at the price point needed for the company to achieve its gross-margin target,” Erickson says.
Once Tesla investors realize Model 3 margins are on the light side, Erickson says they will be forced to acknowledge that Model X and Model S sales seem to be plateauing.
In addition to the current quarter reduction, KeyBanc has also lowered its estimate for full-year 2018 Model 3 deliveries from 120,000 to 108,000.
KeyBanc has…
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