With a critical launch on the horizon, Tesla Motors (TSLA) is facing greater pressure to avoid hiccups.
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Wall Street took a cautious tone in response to Tesla’s first-quarter earnings, which were released after the closing bell Wednesday. In mixed reviews, analysts were relieved to hear the Model X sport-utility vehicle remains on track for a summer debut.
But the outlook for second-quarter deliveries fell short of expectations, and Tesla may need to bolster its cash reserves sooner rather than later.
Tesla expects to ship between 10,000 and 11,000 Model S deliveries during the second quarter. That’s fewer than Wall Street forecasted, based on J.P. Morgan Chase’s (JPM) estimation of 12,250 units.
“The company now faces more of a production (and execution) ramp in [the second half] than previously imagined,” analysts at the bank wrote in a research note to clients.
Tesla would need a major push from the Model X to meet a 2015 sales target of 55,000 vehicles.
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The Palo Alto, Calif.-based automaker said it still plans to begin shipping the Model X crossover during the third quarter, although the company was previously eyeing mid-July. Now the Model X is slated to hit the road later in the quarter.
Kelley Blue Book senior analyst Karl Brauer said the Model X timeline was the most encouraging news from Tesla’s earnings report.
“Any further Model X delays will reflect poorly on Tesla, though getting it to market is only half the battle,” Brauer said in an email.
Separately, Tesla made its first acquisition in anticipation of the Model X rollout. The company confirmed Thursday it agreed to buy Riviera Tool, a Michigan-based auto supplier, for an undisclosed amount. Riviera Tool makes stamping dies—used to create body panels—for manufacturers, including Tesla.
Battery production is in focus as well, given Tesla’s $5 billion investment in a new plant that should open its doors starting next year. The Gigafactory will reach full capacity in 2020, according to Tesla.
“Tesla’s aggressive volume goal for 2015 has the automaker working overtime to secure sufficient production capacity,” Brauer wrote, saying Riviera Tool is likely the first of many similar acquisitions by Tesla.
Morgan Stanley (MS) analyst Adam Jonas, who has long been bullish on Tesla, is keeping Model X expectations muted to leave room for execution risk and possible cannibalization of Model S sales. The investment bank includes just 3,100 Model X units in its projections for 2015 deliveries.
Meanwhile, Model S volume is in better standing after the first quarter. The introduction of all-wheel drive helped Tesla’s order book, Morgan Stanley noted.
Cash Flow Questions
Tesla shipped a record 10,045 Model S sedans in the first three months of the year, a 55% increase year-over-year.
Revenue surged 51% to $939 million. Tesla posted a wider loss of $154 million versus $49.8 million in the same period a year earlier. On an adjusted basis, Tesla lost 36 cents a share amid revenue of $1.1 billion.
The results were better than Wall Street anticipated, yet Tesla shares slipped 0.9% to $228.47 midday Thursday. The stock is up 2.7% year-to-date.
Tesla got a bigger boost from selling regulatory credits, which totaled $66 million.
Tesla also burned through cash rather quickly during the latest period, logging a higher-than-expected outflow of $558 million. Chief Executive Elon Musk said Tesla can fund its growth plans without raising capital through, for instance, a share sale.
Morgan Stanley isn’t convinced, noting how Tesla is on pace to spend its $1.5 billion in gross cash over the next three quarters. The best-case scenario would leave Tesla with $500 million at the end of 2015.
“In any case, we believe Tesla may find a capital intervention desirable if not absolutely necessary,” Jonas wrote.
New Revenue Streams
J.P. Morgan suggested Tesla could raise additional capital by taking advantage of its stock’s high value. Alternatively, entering new markets may open new sources of revenue.
Analysts are still evaluating the potential for Tesla’s energy-storage business. Last week, Tesla unveiled batteries for consumers, businesses and utilities. Powerwall home batteries are designed primarily for homes with rooftop solar panels.
Following the announcement, Stifel (SF) analysts suggested a $60 to $70 incremental rise in Tesla’s share price would be plausible. J.P. Morgan initially valued Tesla Energy at $15 a share. Morgan Stanley has baked in zero value from the energy business until analysts can better estimate market demand.
Looking further ahead, Musk said Tesla will begin selling a mainstream sedan, the $35,000 Model 3, around late 2017.