Tesla Investor Optimism 'Will Have To' Adjust, Say Pacific Crest Analysts

The price of Tesla Inc (NASDAQ: TSLA) shares should “ultimately come down,” Pacific Crest analysts said in a review of the electric car manufacturer’s first quarter sales and upcoming Model 3 launch.

As the first quarter draws to a close, vehicle delivers are tracking “in line to just behind” Tesla’s internal goals, analysts Brad Erickson and Elliot Arnson said in a Monday note.

The sales mix at Tesla sales centers is 60/40 between the Model S sedan and Model X crossover, and demand for the Model X is “lagging overall expectations,” the analysts said.

Pacific Crest adjusted its 2018 EPS estimate for Tesla from $0.50 to $0.97 and maintains a Sector Weight rating on the stock.

While Pacific Crest hasn’t set a price target for Tesla, the firm is projecting a fair value “in the low $200s” with the assumption of Model 3 deliveries beginning in the second quarter of 2017 and building higher volumes into 2018.

“We estimate Tesla can deliver roughly 428,000 vehicles at an average selling price of $57,900 in 2020, while doing an additional $2.7 billion in battery revenue, all at an operating margin of 11 percent,” the analysts said.

Tesla raised $1.15 billion through a secondary offering earlier this month. 

Model 3 ‘The Sizzle In The Stock’

The Model 3 sedan, scheduled to launch in July at a $35,000 price point, could still drive investor optimism even if Tesla doesn’t meet its projected production numbers, according to Pacific Crest.

The firm’s bull case for Tesla — a $400 share price in 2018 — “assumes a scenario where Tesla launches M3, the car is awesome and production goes from zero to 4,000 to 5,000/week in 15–20 weeks,” Erickson and Arnson said in their note.

The analysts view these production levels as “unlikely,” but said Tesla stock could still be pushed higher going into the Model 3 launch.

“We think investor optimism will have to come down in terms of contemplating M3 production quality risks, a likely fickle incremental M3 buyer, better investor appreciation of the long-term profit pool composition [...] and potential Autopilot software validation challenges.”

The “profit pool composition” refers to Pacific Crest’s projection that, while the Model 3 is “the story du jour for the stock,” the firm estimates that the existing Model S and Model X will drive 2/3 of Tesla’s profit in the long-term.

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Image Credit: By Steve Jurvetson - →This file has been extracted from another file: Candy Red Tesla Model 3.jpg, CC BY 2.0, via Wikimedia Commons