Foreign Deliveries Are Making a Tesla Bear More Negative - Barron's

Photograph by Darpan Dodiya

Selling cars overseas is seen as one of Tesla ’s (TSLA) most powerful potential long-term growth drivers. But as the first quarter nears its end, its ability to actually get them there is in the spotlight.

JPMorgan analyst Ryan Brinkman, who has an Underweight rating on the stock, cut his Tesla price target by $15 to $215, below FactSet’s roughly $333 average. Shares of the electric-auto maker were roughly flat, at $278.85, in Friday morning trading.

In a Friday note, Brinkman noted that the number of boats in transit could have a significant effect on Tesla’s quarterly delivery numbers.

“First-quarter results are particularly susceptible to potential delays in delivering Model 3s to customers in Europe and China,” Brinkman wrote. ”Any delays in delivering vehicles to Europe and China carry the potential for a disproportionate impact on first-quarter deliveries (and, hence, revenue, margin, and cash flow).”

Newsletter Sign-up

Europe and China have become more important to Tesla in 2019 as the company looks to those markets to boost demand for its mass-market vehicles, such as the Model 3 sedan.

But those cars are still made in the U.S., so the company’s ability to ship them abroad is increasingly crucial: Tesla can’t recognize the revenue associated with a sale until a customer takes delivery. Earlier this week, bullish analyst Ben Kallo at Baird estimated a five-week timeline for shipping cars to Europe.

“That’s our biggest challenge,” Elon Musk said during a January conference call with investors. “It’s not demand. It’s how do we get the cars there fast enough.” (Can’t get enough Tesla coverage? Be sure to read Barron’s Al Root on the Lyft [LYFT] IPO and how the companies compare.)

Tesla is expected to release first-quarter production and delivery numbers early next month, in keeping with recent practice, and analysts have said they’ll watch the announcement closely for both short- and long-term signals. The fourth-quarter update included a count of vehicles in transit.

“We believe a high vehicle in transit number is likely an indication of delivery logistic challenges in Europe and China similar to what we saw in the U.S. market last year,” Jefferies’ Jeffrey Osborne, a Tesla bear, wrote earlier this week. “We envision production exceeding deliveries by 10,000 to 15,000 vehicles, which will be a drain on cash in the first quarter.”

Meanwhile, he wrote, “it is too early to tell what the sustainable demand will be for the Model 3 in Europe and China once the company works through the pent-up demand that has built over several years, but we see increased competition in Europe and tariffs in China until the local factory is operational as midterm headwinds.”

Bulls have noted the likelihood that overseas deliveries will affect the company’s first-quarter numbers, too—though Kallo sees them as a comparatively minor point.

“Model 3 deliveries will likely be sequentially softer in Q1 as the delivery focus shifted internationally (we expect elevated cars in the channel), but we think this phenomenon is well understood at this point,” he wrote.

Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron’s Next at @barronsnext.

Let's block ads! (Why?)