Wall Street analysts say Tesla's first-quarter deliveries were 'substantially worse' than expected

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Wall Street analysts were very disappointed in Tesla‘s first-quarter delivery and production figures.

Shares of the company plunged 8 percent in pre-market trading after Tesla said late Wednesday evening that it delivered 50,900 Model 3 cars in the first quarter, below the 52,450 analysts expected, according to the consensus estimate from FactSet. Overall deliveries also fell short of consensus estimates.

“Tesla’s 1Q19 vehicle production & deliveries report was substantially worse than expected,” J.P. Morgan analyst Ryan Brinkman said in a note to clients.

“Altogether, we think the delivery results will put pressure on TSLA’s shares, and corroborates our belief that volume expectations for the company’s products in 2019 are too high with consumer demand likely lower as subsidies phase out in the US,” said Goldman Sachs analyst David Tamberrino who reiterated his sell rating. “Further, this likely puts downward pressure on our EBITDA and FCF estimates (as well as consensus) given the lower volume levels and worse utilization than anticipated.”

Here’s what the analysts are saying about the Tesla delivery numbers:

Tesla‘s 1Q19 vehicle production & deliveries report was substantially worse than expected…Deliveries tracked just 63,000 units vs. JPM 70,500 and consensus as recently as March 27 of 74,930, suggesting materially less 1Q revenue, margin, and free cash flow… We believe the market postulated that if Tesla were to miss, it would be due solely to a materially greater than expected number of vehicles in transit (vehicles that could be sold in early 2Q, suggesting little need to lower full year estimates), but this appears to be only partly the case, with vehicles in transit at quarter-end totaling 10,600 vs. our estimate of 10,000, in our view implying lower underlying domestic demand…While most attention is being paid to the Model 3 ramp, deliveries of the higher price Model S & X declined substantially in 1Q, totally just 12,100 between them — less even than the Model S alone used to sell in some quarters preceding the full production ramp of the Model X, again in our view implying a deceleration in underlying demand unrelated to temporary delivery difficulties (maybe due to tax credit expiration?).”

“While we were disappointed in the shortfall of deliveries in Q1 versus expectations, we continue to believe that the new lower-priced Model 3 variant will spur additional demand. Importantly, the company cited roughly two weeks of inventory in North America which may help temper concerns of an inventory build. We maintain our BUY rating given the overall opportunity that we see for Tesla and EVs in general, but are lowering our PT to $391 which is based upon 30x our new FY20 EPS of $13.05.”

“1Q19 is shaping up to be one TSLA may want to forget, but needs to explain to shareholders who own it as a LT disruptor. We felt the #1 2019 determinant for TSLA’s share price was if it could prove to the mkt. it can be self-funding on a sustainable basis.”

“Ultimately, given what appears to be slower than anticipated progress on the Model 3 production ramp, TSLA’s past production/ logistics challenges on the Model S/X, and now potentially new challenges with deliveries to Europe and China, we expect it will take some time before the Model 3 production/sales reaches mass scale; and thus, costs related to the ramp and lower priced variants may outweigh potential benefits of operating leverage for some time. .. .Moreover, there still remain a number of major hurdles ahead for TSLA, including: 1) ongoing Model 3 production ramp and future operational challenges associated with expanding the product lineup; 2) what could be a very material cash burn in coming quarters (from ongoing delivery/logistic issues, Shanghai factory construction, etc.) which could pressure TSLA’s liquidity even with recent capital inflows and require future capital raises; 3) faster than usual spike and burnout pattern for Model S/X; and 4) the prospect of new competition and longer term obsolescence. As such, we continue to question TSLA’s longer term profitability, cash flow, and valuation.”

“We think the disappointing results likely put pressure on consensus estimates for the full year especially for Model S/X deliveries (with company-compiled consensus for Model S/X deliveries at 91k and Model 3 at 282.5k versus an annualized rate of 1Q19 results indicating around 50k Model S/X deliveries in 2019 and 204k Model 3 deliveries). Further, we think the result likely fuels bearish investors’ concerns about waning demand — especially as these disappointing results came even as the company expanded Model 3 deliveries internationally and began offering $35k variants of the Model 3. Altogether, we think the delivery results will put pressure on TSLA’s shares, and corroborates our belief that volume expectations for the company’s products in 2019 are too high with consumer demand likely lower as subsidies phase out in the US. Further, this likely puts downward pressure on our EBITDA and FCF estimates (as well as consensus) given the lower volume levels and worse utilization than anticipated. As a result, we reiterate our Sell rating on shares.”

“While we see myriad possible explanations for Model S and X weakness (reduction of US tax credit; phasing out of Dutch tax incentives; Q1 seasonality; model fatigue; incremental competition), we remain perplexed by the magnitude of the decline. Perhaps more importantly, our analysis suggests that non-in-transit inventory of S/X could be 15,000 – 20,000 units, or more than one quarter’s demand. We found Model 3 deliveries less concerning, given (1) the high-end Model 3’s unsustainably high U.S. market share in 2H 18 (33% of its segment) and (2) the invariable logistical bottlenecks that have emerged overseas (Tesla is now delivering 5x more cars internationally than it ever has before). We remain less worried about the key investor controversy of underlying Model 3 demand – our analyses suggest 400,000+ cars a year is very possible. We have lowered our estimates for S, X deliveries in 2019 to 68K from 80K, and expect Model 3 deliveries of 291K (vs. 295K). We forecast TSLA to use $1.1B in cash in Q1 (including $200M in restructuring expenses) and now model FCF of about -$200M per quarter in Q2 and Q3, and break-even in Q4 19. We model Tesla’s Q1 ending cash balance at $1.7B. We believe that TSLA should have raised capital in the 2H18 and eschewed near-profitability to press its first-mover advantage & grow as quickly as possible in 19 and 20. It is now in the uncomfortable position of likely needing to raise capital from a position of relative weakness.”

“Though Tesla bulls might look past the Q1 Model 3 miss, the S/X numbers will likely spark some legitimate demand & company margin concerns, particularly given the risk for some incremental cannibalization from the recently introduced Model Y. We expect the stock to come under pressure on this and perhaps test recent lows—maintain Sell/High Risk. A few implications from here: (1) First, it’s setbacks like these that underscore the need for greater balance sheet cushion—after all Tesla’s quarterly financial DNA now resembles far more “auto” than “tech”. Tesla noted that it had “sufficient” cash to end Q1, but we doubt the word “sufficient” will inject much comfort; in fact it might even draw more scrutiny to Tesla’s balance sheet issues, in our view. (2) At the very least, Q1 deliveries will likely cause the bull camp to revisit assumptions about the NT demand trajectory. Tesla confirmed its 2019 delivery targets, which of course now look quite aggressive requiring ~100k deliveries on average in each remaining quarter. So demand will likely be scrutinized even more so, and the outcome in the coming months could meaningfully re-shape the entire Tesla bulls/bear debate.”

“Model 3 deliveries were in line with our expectations but Model S+X deliveries missed both our and consensus estimates; TSLA indicated lower-than-expected delivery volumes and pricing adjustments are expected to negatively impact net income in the quarter. Additionally, a high number of cars in transit at the end of the quarter could impact cash flow, though the company indicated it had “sufficient” cash on hand at quarter-end. TSLA also announced it will host an investor day on autonomous driving initiatives on April 19.”

This is a developing story. Check back for updates.

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