Tesla in Holding Pattern Ahead of New Model 3
We think shares remain overvalued as the firm gets ready to launch its mainstream sedan.
We are not changing our fair value estimate on
We see the company’s results in a holding pattern until Model 3 sedan production begins in July. Management upheld its first-half 2017 total vehicle delivery guidance at 47,000-50,000 units, roughly 66% year-over-year growth at the midpoint of guidance, and thinks capital expenditure will be slightly over $2 billion by the time Model 3 production starts. The firm has not yet provided full-year guidance on deliveries or capital spending. We think the long-term story on what Tesla can achieve in electric cars, trucks, mobility, and energy generation and storage will ultimately determine the value of the company. We think the stock trades on momentum for option value that, if realized, is still many years away, and therefore we do not think any single quarter’s results are critical to the investment thesis.
CEO Elon Musk did give some product updates, including that the Model Y, a small crossover, will be built on a new platform from the Model 3 and be available in late 2019 or 2020. Musk is also not as keen on developing a bus as he first outlined in a July 2016 blog post, as an autonomous car ride could be cheap enough to make the bus irrelevant. Other recent product announcements are a September unveiling of the Tesla semi-truck and a pickup truck reveal in 18-24 months. We are very curious as to whether Tesla can take on the Detroit Three in pickups, as the latter has over 90% share of the full-size segment.
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