Elon Musk
Photograph by Krisztian Bocsi — Bloomberg via Getty Images

Elon Musk has a history of setting guidance too high.

By Lucinda Shen
May 6, 2016

It’s becoming a common theme now: Tesla Motors tsla sets high guidance for car deliveries, misses, and shares fall. Weeks later investors feel more bullish—and the whole cycle repeats.

But are high expectations a problem for Tesla?

In an analyst note Thursday, Oppenheimer questioned Tesla’s guidance of producing 20,000 vehicles and shipping 17,000 in the second quarter of 2016, saying Tesla was “indulging the fantasy yet again.” That came after Tesla decided to accelerate its car production plan by two years—making 500,000 cars by 2018 rather than 2020.

“We (model) Tesla reaching 500k vehicles in 2019 vs. the target of 2018, noting the company has a history of setting nearly unachievable goals,” a team of Oppenheimer analysts led by Colin Rusch wrote—though Oppenheimer noted the high expectations weren’t signs the company is on shaky ground. Instead, Oppenheimer reiterated its Outperform rating on the stock.

“We believe the company can achieve 15%+ incremental operating margins as it ramps the Model 3,” the analysts note. Orders for the Model 3 have reached almost 400,000.

But according to a note by a team of Barclays analysts led by Brian Johnson, the hiked expectations are going to require more cash and financing to fund Tesla’s ambitious plans—but that might be both difficult and expensive when Tesla has yet to deal with current issues. It will also likely press on Tesla’s profit margins as it seeks accelerated growth.

 

“While we appreciate Tesla’s desire to become a best-in-class manufacturer, up until now it has seen no shortage of manufacturing challenges—not only for the X, but also for the S,” the analysts wrote in a Friday note, as first reported by Barron’s. The analysts also questioned the profitability of the hot Model 3 car, especially when considering how Tesla will have to mass produce its battery at a low cost.

“Simply, it’s unclear to us that Tesla can reach its battery cost targets especially given the accelerated timeline,” the analysts noted. “Plus there will be an incredible amount of content (which obviously comes with a cost) in the vehicle and Tesla is looking to increase vertical integration—a risky and expensive proposition.”

“With Tesla likely to come to the market for a capital raise near-term,”Barclays continued, “it’s worth asking whether it deserves an up round or a down round.”

SPONSORED FINANCIAL CONTENT

You May Like