Tesla: Color on Quarter (288.50)
- Needham notes TSLA posted its first quarterly profit and positive free cash flow in over two years fueled by higher-margin Model 3 sales. They had highlighted that the GM could improve in the 2H18 as TSLA exhausts its high-end backlog of AWD and performance versions (blended ASP of $65K). However, they remain concerned that overall margins will decline in the 1H19 due to an unfavorable mix shift of Model 3s, decline in ZEV sales, service margins stay in -35-40% and pricing pressure on Model S/X. Moreover, we remain cautious on how fast and, more importantly, profitably it can produce the $45K, not to mention the $35k version, in order to match the backlog of orders. Given the lead time data, they contend that the majority of the 455k net reservation list are for individuals who reserved for the base model.
- Oppenheimer raises tgt to $418 from $385. With TSLA delivering positive cash flow in 3Q18 well ahead of expectations at $740M in FCF (vs. consensus at $180M), all eyes now turn to the 2019 debt maturities, capital needs for its China capacity expansion, and depth of demand for Model 3. With ~$890M in convertible notes due March 2019 with a strike price of $359.87 and ~$525M due November 2019 at $759.36, they expect TSLA to hope shares trade above the March 2019 conversion price and pursue a new fixed income instrument to address capex and the November 2019 converts. TSLA also highlighted its remaining 300k+ Model 3 reservations indicating it expects strong sales as it introduces Model 3 in Europe in early 2019. They remain bullish.
- Guggenheim reiterates $430 tgt; Cowen raises tgt to $250 from $200; Piper Jaffray raises tgt to $396 from $389; Canaccord Genuity to $32