Merrill Lynch: Tesla, Soft 3Q13# Stock
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From Merrill:
TSLA reported 3Q13 adj. EPS of $0.12 (ex. lease acct.), below our $0.20
estimate. We note that consensus EPS of $0.11 appears to have been skewed
lower by forecasts including the effect of lease accounting, and therefore
is likely not comparable.
In our view, 3Q highlights the challenging path that lies ahead for Tesla,
particularly given that the bull thesis appears to assume high-teen, luxury-
vehicle EBIT margins by 2020, despite most sales being attributable to the
mass market GEN 3 by that time
Key takeaways from 3Q
First: NA deliveries declined by 650 units sequentially, which could be an
early sign that the pace of demand has peaked, despite TSLA’s assertion
that it was supplied constraint. Second: Tesla expects operating costs and
capital spending to rise meaningfully in 4Q13. Third: Free cash flow is
expected to be roughly breakeven in 4Q, implying 2013 cash burn of
approximately $50mm. Overall, we expect the
capital intensive nature of the automotive business to continue pressuring
Tesla’s results, and believe volumes could continue to disappoint the
optimists.
Overvalued stock; retail investors at risk
We continue to believe meaningful execution challenges remain for TSLA and
that the shares are vastly overvalued. Also, it is becoming increasingly
evident to us that retail investors could be caught holding the bag as the
shares correct (see Mom, Pop, & the Gen 3 dream, given that institutional
ownership has consistently declined in 2013
TSLA reported 3Q13 adj. EPS of $0.12 (ex. lease acct.), below our $0.20
estimate. We note that consensus EPS of $0.11 appears to have been skewed
lower by forecasts including the effect of lease accounting, and therefore
is likely not comparable.
In our view, 3Q highlights the challenging path that lies ahead for Tesla,
particularly given that the bull thesis appears to assume high-teen, luxury-
vehicle EBIT margins by 2020, despite most sales being attributable to the
mass market GEN 3 by that time
Key takeaways from 3Q
First: NA deliveries declined by 650 units sequentially, which could be an
early sign that the pace of demand has peaked, despite TSLA’s assertion
that it was supplied constraint. Second: Tesla expects operating costs and
capital spending to rise meaningfully in 4Q13. Third: Free cash flow is
expected to be roughly breakeven in 4Q, implying 2013 cash burn of
approximately $50mm. Overall, we expect the
capital intensive nature of the automotive business to continue pressuring
Tesla’s results, and believe volumes could continue to disappoint the
optimists.
Overvalued stock; retail investors at risk
We continue to believe meaningful execution challenges remain for TSLA and
that the shares are vastly overvalued. Also, it is becoming increasingly
evident to us that retail investors could be caught holding the bag as the
shares correct (see Mom, Pop, & the Gen 3 dream, given that institutional
ownership has consistently declined in 2013