Tesla’s Deliveries Underwhelm, but TSLA Gets a ‘Buy’ Nod

Yesterday, Tesla (TSLA) reported its third-quarter deliveries, which came in at about 97,000—a record. However, Tesla’s deliveries still fell short of Wall Street expectations of 98,000. This slight miss provided fodder to the bears and its stock slid nearly 5% in extended trading yesterday.

Even after besting its Q2 delivery record of 95,200, Tesla’s deliveries for the third quarter underwhelmed CEO Elon Musk’s mark of 100,000. According to last week’s leaked email from Musk, as reported by Electrek, the Tesla CEO thought that the company had “a shot” at delivering 100,000 cars in Q3.

Tesla’s deliveries rising in a down US auto market

The company noted in its press release, “We achieved record net orders in Q3 and are entering Q4 with an increase in our order backlog.”

However, this feat is still impressive, given the fact that the demand for internal combustion engine cars is slowing down considerably. Most of the legacy automakers have reported declines in deliveries for the third quarter.

Aside from Tesla’s delivery report, legacy automakers’ sales underwhelm

Ford (F), General Motors (GM), and Fiat Chrysler (FACU) reported their deliveries yesterday. While Ford reported a decline of 4.9% year-over-year (or YoY), FCAU and GM reported respective YoY increases of 0.1% and 6.3%. Despite reporting an increase, GM fell short of analysts’ expectations of 7.8% YoY growth.

On October 1, Toyota (TM), Nissan (NSANY), and Honda (HMC) reported their September vehicle sales. The sales for all three companies plummeted by double digits during the month.

Exane BNP Paribas initiated Tesla with a “buy”

However, there was some good news for Tesla yesterday. As reported by MarketWatch on October 2, Exane BNP Paribas initiated coverage on Tesla stock yesterday with a “buy” rating.

The firm has a target price of $300 on the stock, implying an upside of nearly 23% from its last closing price. The firm noted that Tesla “has a unique opportunity to capitalize on rising consumer appetite — and political will — for a new electrified era.”

Exane BNP Paribas on Tesla: Higher range and superior battery

Exane BNP Paribas is also bullish on TSLA stock due to its vehicles’ higher range and superior battery. Tesla has long maintained its edge over the competition when it comes to range, which is the distance an electric vehicle can travel between two charges. Range is a key consideration for a consumer before buying an EV.

Some Tesla models offer a range exceeding 300 miles on a full charge. The Tesla Model S’s long-range mode offers a range of 370 miles, and the Model 3’s standard mode provides a 240-mile range. Most of the recent EV launches haven’t been able to beat the range metrics of Tesla’s early models. You can read about this topic in more detail in Tesla’s Range: Can It Outpace the Competition?

Exane BNP Paribas sees Tesla’s volumes tripling by 2025

According to MarketWatch, Exane BNP Paribas sees Tesla’s volumes tripling by 2025. Along with existing models, Tesla’s upcoming launches should help the company achieve this target. Its Model Y is expected to commence deliveries in 2020.

While the Model Y’s cost of production isn’t much different from that of the Model 3 due to a significant component overlap, its price should be higher. This would help the company achieve its volume goals as well as higher margins.

Tesla’s China Gigafactory’s progress

Tesla is progressing well with the construction of its China Gigafactory 3. This factory is expected to start producing China-made Model 3s in the fourth quarter. These models could be priced lower than their US-made counterparts, which could lead to increased uptake of cars in China and volume growth. To learn more, please read Tesla Gigafactory 3: A Step Closer to Model 3 Production.

Tesla’s DeepScale acquisition

Another key recent development for TSLA stock was its acquisition of DeepScale, a computer vision startup. This acquisition could help Tesla integrate its hardware capabilities with the needed software to develop fully functional autonomous vehicles. Please read Tesla-DeepScale Deal Puts Self-Driving in the Fast Lane for more on this topic.

Tesla’s profitability a concern

Analysts and investors are now looking forward to Tesla’s Q3 2019 results. While a slight miss, its Q3 deliveries were still solid. However, the market isn’t greatly concerned about the demand for Tesla cars now.

Despite achieving record deliveries in Q2, Tesla reported higher-than-expected losses during the quarter. This is why investors are concerned about Q3. The company’s sales mix geared toward the low-margin Model 3 is the main driver of the company’s margin issues.

We discussed Tesla’s profitability conundrum and the factors behind it in Tesla’s Profitability, Not Demand, Could Be a Problem.