Tesla Motors Inc (NASDAQ:TSLA) is ready to start building the Model X in its Fremont, California factory says a report from Pacific Crest analyst Brad Erikson. The Wall Street sleuth was brought on a tour of the factory in recent days and says that Tesla’s new factory line is “beginning to pilot Model X shells.”
With Uber CEO Travis Kalanick making noise about wanting to buy 500k autonomous Tesla cars in 2020 it’s great to see the company building out it’s production infrastructure.
Mr. Erikson says that the new line is already looking much more impressive than what the Model S started off with. Importantly, he says that “we couldn’t help but notice several buses worth of new employees receiving training for the new line.”
The analyst also reports seeing between 3 and four times the amount of robots on the Model X line. A report from little over a month ago noted no evidence of the Model X, meaning that the line was set up in a little over two weeks. That’s an impressive feat for a firm that has struggled with its factory in the past.
Tesla Motors gears up for Model X
Tesla Motors CEO Elon Musk has said time and time again that the first Model X will exit its factory on the way to its first owner by the end of the third quarter. The Pacific Crest report says that that looks likely. “We continue to expect the X launch sometime in September and would expect investor optimism to grow into this launch,” he wrote in this morning’s report.
The Tesla line will begin in the Fremont factory that makes the Model S, but the firm has also leased space in the old Solyndra factory down the road. That might be used as a base to expand in the future. A Tesla spokesperson said that the area “gives us the space to expand our manufacturing and build more engineering labs as we build up production.”
The Model X pervades the Fremont building, and Mr. Erikson says “to say the mood in the factory is one of “gearing up” would be an understatement.” The Model X will be the firm’s third car model, and will need to be a hit if the firm is to go ahead and build its Model 3 mid-range EV.
Tesla Model X shielded from news selling
Mr. Erikson says he thinks the Model X release will bring with it a clean road for Tesla Motors stock. He says that the initial reviews are likely to be strong and investor optimism about the future of the firm “could certainly prevent a “sell-the news” type of scenario.”
Mr. Erikson went on to say that the Tesla Motors bear thesis is “fatiguing” and added that “strength of orders for the Model X and our views of steadily rising demand for the Model S” show that bear hopes for slack demand through 2015 are not going to be met by the market.
Erikson is confident in Elon Musk and his team, and thinks that even if there is a delay in the release of the Model X the issues will be solved in a short period of time. He put a price target of $293 on the firm’s shares and a Buy rating on stock up to that level.
On today’s market shares in Tesla Motors opened at $268.89. Erikson finds himself among the crowd with his rating on the firm’s shares. Most of Wall Street is behind Elon Musk heading into the start of Model X production.
5 of the 23 Wall Street voices speaking out on Tesla Motors are telling clients to Buy stock in the firm, while another 8 say that the firm’s shares will Outperform the market in the year ahead.
6 more want their clients to Hold their shares while just 4 say that Tesla Motors will Underperform. No sell-side analysts are telling their clients to sell shares in the firm right now. The median price target on shares in the firm sits at $290, just $3 lower than Pacific Crest’s forecast.
Tesla is setting up its line fast
Baird analyst Ben Kallo, who did his tour of the Tesla Motors Fremont factory earlier in June says that he didn’t see much evidence of the Model X on his look at the factory. His report on that tour was published on June 19, suggesting that all of the progress that Mr. Erikson of Pacific Crest has seen was accomplished in just over two weeks of work.
Mr. Kallo’s report did notice that “many of TSLA’s current investments are to support mass vehicle production.” Those include the firm’s new paint shop which he sees as being a key asset for the firm’s Model X and Model 3 lines going ahead.
The speed with which Tesla Motors has gotten that line up and running should give some support to those hoping for a quick and easy execution of the Model X from Tesla Motors.
Model X set to beat the Model S
While Wall Street looks forward to the release of the Model X, Elon Musk and his team have given them good reason to be optimistic. Mr. Musk said back in February that he’s looking for the Model X to have higher sales numbers than the Model S, and he says that 20,000 of the cars have already been reserved by EV-hungry SUV fans.
Tesla Motors is going to be the only firm with a decent SUV EV on the market this year, and it will have years to convince SUV fans of the glory of electric before any other firm comes out with their own model. Audi is working on its own EV SUV, but it’s not forecast to arrive before 2018.
The sheer number of reservations, and the good reviews that are expected to meet the Model X as it hits the road, create another kind of problem for Tesla Motors, the same kind it has had with the Model X over the last two to three years.
Ramping up Model X production
Though it seems clear that Elon Musk will meet his target and get the first Model X out the door before the end of the third quarter, it’s not clear how many units of the car he will sell by the end of the year, or how long it will take to ship the first 20,000.
Ryan Brinkman of JPMorgan reckons that Tesla Motors will ship 5,050 units of the Model X by the end of the year. Adam Jonas of Morgan Stanley says that Tesla will ship just 3,100 Model X SUVs by year’s end.
The exact number that Tesla Motors will manage to get out the door by the en of the year will depend on what kind of issues and shortages the firm runs into as it ramps up production. The speed with which the line was set up adds weight to the idea that the Tesla Motors team is much better at boosting production than it used to be.
That remains to be seen, of course, and the fourth quarter Model X numbers, which won’t be seen until January 2016, will be key in showing whether Elon Musk has really managed to turn Tesla Motors into a frictionless production machine.