(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Over the past 52 weeks, Tesla Inc.'s (TSLA) stock has stagnated, rising by only 15.5 percent – not much better than the S&P 500's 14.5 percent increase. Meanwhile, production issues for the Model 3 have dampened the spirits of even some of Tesla's most prominent bulls, as delays on the highly anticipated four-door all-electric car just drag on.
The Model 3 delays have caused Tesla's stock price to decline by over 19 percent since peaking on September 18 at roughly $385. But despite the price of the stock dropping, analysts' sales estimates have fallen far less, with consensus estimates calling for revenue to rise by nearly 63 percent in 2018 to $19.09 billion, and another 39 percent in 2019 to $26.51 billion. Even more intriguing is that out of 26 analysts that cover the stock, nearly 40 percent have a sell or underperform rating on Tesla stock, according to YCharts.
Big Revenue Growth
The timing of the Model 3's production ramp-up has been cut sharply over the past couple of months. The original estimates called for 5,000 Model 3 cars to be produced per week by the end of December 2017. But those estimates were reduced sharply at the outset of 2018, to 2,500 per week for March, and 5,000 by the end of June.
Intuitively, one would think that revenue estimates should fall in kind, considering Tesla would be producing far fewer cars than originally anticipated in the first half of 2018. But interestingly, analyst projections for revenue in 2018 and 2019 have only declined by 8 percent for each year.
In October 2017, analysts were looking for 2018 revenue of $20.75 billion. Those estimates have fallen by about $1.66 billion to $19.09 billion, while 2019 projections of $28.74 billion have declined by $2.23 billion to $26.51 billion, or roughly 8 percent.
Heading Toward Profitability
Additionally, analysts see the company losing money in each of the next 2 years, but nearing breakeven in 2019 on a GAAP basis. Tesla lost $11.83 per share in 2017 on a net loss of $1.961 billion. That's more than triple its 2016 net loss of approximately $675 million, as the company spent money to ramp up production on the Model 3.
But analysts expect that loss to shrink in 2018 to a GAAP loss of $9.17 a share, or $1.5 billion, and to a loss of $0.77 or $128 million, in 2019, assuming the share count remains unchanged.
Analysts Remain Unchanged
Despite the fact that production targets have been slashed, the number of analysts with a buy or outperform rating has remained constant over the past 52 weeks at 8.
Meanwhile, the number of analysts with a sell or underperform rating has climbed from 6 to 10, and 8 have stayed at hold. This suggests that the newer analysts that initiate coverage on Tesla have a more bearish view of the stock price, but not of its revenue or earnings expectations. (See also: Tesla Defies Gravity as Stock Runs on Fumes.)
Despite the back and forth regarding the proper valuation for Tesla and drama around the Model 3 production, consensus points to sales that are quickly ramping up. The only question that remains is if analysts will be right.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.