Tesla (TSLA) held its annual shareholder meeting on Tuesday, where CEO Elon Musk said there is not a demand problem for the Model 3 and that the company expects to unveil its pickup truck this summer. Commenting on the meeting, Baird analyst Ben Kallo said he believes Tesla's annual meeting was a "positive step" toward rebuilding investor credibility. Not as bullish, his peer at Wedbush added that he still sees Tesla and Musk facing a "fork in the road scenario" with Model 3 demand and that the company needs a "significant rebound" in the Model 3 deliveries this quarter as well as into the back half of 2019 to provide sustained profitability.
ANNUAL MEETING: On Tuesday, Tesla's CEO Elon Musk spoke at the company's shareholder meeting in Mountain View, California. In its opening comments, the executive said that, "I want to be clear, there is not a demand problem" for Tesla's Model 3. "Production has been pretty good," and "Tesla has a decent shot at a record quarter on every level," he added. The CEO also said Tesla is expected to unveil its pickup truck this summer and to determine a location this year for a European Gigafactory where the company will make cars and batteries. Discussing the electric carmaker's financial prospects for 2019, Musk said that, "Profitability is always challenging for a growth company." Tesla is on target to grow its "fleet" by 60% to 80% this year, and "it's hard to be profitably with that level of growth," he said, adding that Tesla could still be cash-flow positive at that rate.
MEETING A 'POSITIVE STEP': In a research note to investors on Wednesday, Baird's Kallo said he believes Tesla's annual meeting was a "positive step" toward rebuilding investor credibility and added that he likes the stock's setup into the balance of the year. Highlighting that management indicated demand is not a concern, the analyst argued that the narrative is "overly conservative" and that “Bear arguments will be disproven in the coming weeks and months.” Kallo has seen "several signs of steady demand" over the past few weeks, and management indicated quarter-to-date orders have outpaced production, while Musk added that the company could achieve record deliveries in second quarter.
Overall, the analyst sees several catalysts over the next few months which could create a challenging short environment, including the company's delivery release by July 4 with potentially record volumes, a potential cash flow positive quarter, and the battery and powertrain analyst day expected this summer. The analyst also thinks short covering over the next few weeks "could provide an incremental buyer" for Tesla shares. He reiterated an Outperform rating and $340 price target on the stock.
STILL FACING 'FORK IN THE ROAD SCENARIO': Also commenting on Tesla's annual shareholder meeting, Wedbush analyst Daniel Ives noted that CEO Elon Musk provided an update on Model Y as well as Gigafactory-China, outlined the roadmap and status for the Pickup and Semi, while providing insights into the current quarter, Model 3 demand, and battery production. However, Ives continues to believe in the near-term Musk and Tesla are facing a "fork in the road scenario" with Model 3 demand, and thinks the company needs a "significant rebound" in Model 3 deliveries this quarter as well as into the back half of 2019 for it to provide sustained profitability.
Noting that Musk also discussed product roadmap which features the Model Y to hit volume production by the end of next year, the pickup to be unveiled toward the end of the summer and the Semi to be in production by the end of 2020, the analyst also argued that the bigger question remains the company's overall unit guidance for 2019 of 360k-400k units and this quarter for 90k-100k units. Hitting the 360k-400k unit demand guidance for 2019 is going to be a "Herculean task," Ives contended, as in a best case scenario he sees 360k-370k and in a base case 340k-355k. The analyst has a Neutral rating and a $230 price target on the shares.
PRICE ACTION: After starting the session higher, shares of Tesla are down 3% to $210.54 in morning trading.