Shares of Tesla (TSLA) are under pressure as Wall Street digests the company's disappointing delivery numbers, with several analysts lowering their price targets on the stock. Commenting on the news, Goldman Sachs analyst David Tamberrino said he believes the disappointing results will likely put pressure on consensus estimates for the full year, while his peer at Canaccord argued that the new lower-priced Model 3 variant should spur additional demand. Noting that Thursday will be a "busy day" for Tesla's investors, Roth Capital analyst Craig Irwin added that the SEC hearing may shed light on whether the latter has shut capital market access for Tesla, which would amplify problems from first quarter cash burn.
PRODUCTION, DELIVERY NUMBERS: On Wednesday, Tesla announced it delivered approximately 63,000 vehicles, which was 110% more than the same quarter last year, but 31% less than last quarter. This included approximately 50,900 Model 3 and 12,100 Model S and X. The company stated that, "Due to a massive increase in deliveries in Europe and China, which at times exceeded 5x that of prior peak delivery levels, and many challenges encountered for the first time, we had only delivered half of the entire quarter's numbers by March 21, ten days before end of quarter. This caused a large number of vehicle deliveries to shift to the second quarter. At the end of the first quarter, approximately 10,600 vehicles were in transit to customers globally. Because of the lower than expected delivery volumes and several pricing adjustments, we expect Q1 net income to be negatively impacted. Even so, we ended the quarter with sufficient cash on hand. Despite pull forward of demand from Q1 2019 into Q4 2018 due to the step down in the federal tax credit, U.S. orders for Model 3 vehicles significantly outpaced what we were able to deliver in Q1. We reaffirm our prior guidance of 360,000 to 400,000 vehicle deliveries in 2019."
'SUBSTANTIALLY WORSE' THAN EXPECTED: Saying that Tesla's first quarter vehicle production and deliveries report was "substantially worse than expected," JPMorgan analyst Ryan Brinkman lowered his price target for Tesla to $200 from $215, while reiterating an Underweight rating on the name. With deliveries tracking just 63,000 units versus JPMorgan's estimate of 70,500 and consensus as recently as March 27 of 74,930, the analyst believes this suggests "materially less" first quarter revenue, margin, and free cash flow. Further, Brinkman pointed out that the market had assumed that if Tesla were to miss, it would be due solely to a materially greater than expected number of vehicles in transit, which appears to be only partly the case. While investor focus has been on the Model 3 ramp, deliveries of the higher price Model S and X "declined substantially" in the first quarter, he noted. Additionally, the analyst argued that the reaffirmation of the 360,000-400,000 full year deliveries guidance undermines "a key tenet" of CEO Elon Musk's legal defense against the SEC, namely that his February 19 tweet that Tesla will make around 500,000 vehicles in 2019 was not new information needing pre-approval. Moreover, the "now clear incongruence" of CEO outlook statements with official company guidance may hurt the perception of management commentary, eroding investor confidence and potentially placing additional pressure on the shares, he contended.
Also reiterating a Sell rating on Tesla's shares, Goldman Sachs' Tamberrino noted that Model S/X and Model 3 deliveries came in well below his estimates and consensus expectations in first quarter, while production levels also disappointed in the quarter. Further, the analyst argued that the disappointing first quarter results will likely put pressure on consensus estimates for the full year. Overall, the delivery results support his belief that volume expectations for 2019 are too high and will likely fuel bearish investors' concerns about waning demand, he added. Also voicing concern, his peer at RBC Capital pointed out that Tesla's first quarter deliveries of 63,000 cars represent a 17% miss against consensus expectations that had already been "massively lowered." Analyst Joseph Spak estimates that the delivery number implies a $1B or more in revenue shortfall for the quarter and believes the Model 3 is having a greater cannibalization effect than was previously assumed, as the rising competition and reduced tax credit incentives weigh further on sales. Spak reiterated an Underperform rating on the shares. Meanwhile, Cowen analyst Jeffrey Osborne lowered his price target on Tesla’s shares to $170 from $180 saying that the company's growth narrative "looks very suspect" following the report that deliveries were down 31% and production was cut 11% compared to the fourth quarter. Osborne kept an Underperform rating on the shares.
MODEL 3 DELIVERIES NOT AS BAD AS FEARED: While Canaccord analyst Jed Dorsheimer lowered his price target on Tesla shares to $391 from $450, he reiterated a Buy rating on the name. The analyst acknowledged that he was "disappointed" with the shortfall of deliveries in the first quarter versus expectations, but said he continues to believe that the new lower-priced Model 3 variant will spur additional demand. His peer at Wedbush voiced a similar opinion, pointing out that the Street was expecting an "apocalyptic quarter" but Model 3 deliveries were slightly better than feared by many. Analyst Daniel Ives reiterated an Outperform rating on the shares, but lowered his price target on the stock to $365 from $390.
'BUSY DAY' AHEAD: Also commenting on Tesla's news, Roth Capital’s Irwin said Thursday will be a "busy day" for investors with Elon Musk's court date in front of Judge Nathan, "terrible" deliveries numbers, and mounting questions about cash burn and capital market access. Further, the analyst sees the "CEO's antics challenging the SEC as reckless," and could see similar behavior in court. Cash will be impacted by the weak quarter, so questions on capital market access are important, he added. The analyst expects the SEC hearing to shed light on whether it has shut capital market access for Tesla, which would amplify problems from first quarter cash burn. Irwin reiterated a Neutral rating and s $270 price target on the shares.
PRICE ACTION: In morning trading, shares of Tesla have dropped about 9% to $265.51.