Tesla Motors Inc has had a great year in 2015, but some of the things holding the firm back are going to keep a grip until the end of the year. We’re getting into the holidays in full swing right now, with Thanksgiving hitting on Thursday, but Tesla Motors may just want them to be over already so it can get to the promised land of 2016.
The firm’s full year sales are likely to come in below the original guidance of 50,000 and Wall Street is skeptical about whether Tesla will be able to hit the numbers promised in its recent earnings report.
Tesla says it can ship more than 17,000 cars in the three months through December, but that would be 40 percent higher than its second biggest quarter of all time. Dan Galves of Credit Suisse reckons that there’s support for the idea that Tesla Motors will hit that target, and he says that he’s looking forward to a cleaner 2016 from Tesla Motors.
Tesla Motors meets targets
Mr. Galves reckons that a couple of one off events should allow Tesla Motors to meet that 17,000 car sales target. In his view there will be an extra 1,000 or so sales of the Model S in Denmark ahead of that country’s changing tax structure for EVs. At the same time there will likely be a spike in the UK, according to Galves, after the release of the Model S P85D in that country.
In total Mr. Galves reckons Tesla Motors will get the same 15,000 orders it got in the third quarter and combine them with the two one-off bonuses of 1,000 in order to come up with total orders of close to, or exceeding, 17,000. Tesla Motors says it will build 17,000-19,000 cars in the fourth quarter and ship 15,000-17,000.
Trip Chowdhry of Global Equities Research, in a report released on Tuesday, said that shares in the firm are worth $385 each. In a past report he said he thought Tesla Motors could ship up to 89,000 vehicles in 2016. Tesla Motors boss Elon Musk said in a recent earnings call that his firm could likely build an average 1,600-1,800 cars per week in its Fremont factory.
That means somewhere between 83,000 and 93,000 cars could be built next year, though, despite the hopeful voices of both Mr. Galves and Mr. Chowdhry, there’s still quite a lot restraining sales at Tesla Motors.
Cleaning the slate at Tesla Motors
We won’t know whether or not Tesla Motors Inc hit that target until early on in January. Mr. Galves reckons, however, that things could really change for Tesla Motors heading into the New Year. “2016 is a much cleaner year, which enables operating leverage,” he wrote.
He wrires that, in the year ahead, Tesla Motors will be able to raise earnings and slow down its cash burn dramatically. That’s exactly the sort of thing that those with money in Tesla Motors want to hear. The firm has, for all of its sales victories, been plagued by cash burn throughout 2015 and its debts keep piling up.
Galves is forecasting sales of around 36,000 Model X units in the full year 2016. So far in 2015 Tesla Motors has shipped just about zero units of the car with a small margin of error. Credit Suisse says that Tesla will emerge form its loss-making 2015 to post its first annual profit, a total of $4 per share.
That will come with a slow down in the firm’s cash burn rate. Mr. Galves reckons that Tesla Motors will burn only $500M next year. That’s less than the firm made disappear in the third quarter of 2015.
The consensus on Wall Street right now is for Tesla Motors to make $1.86 per share. Galves says that hitting even that number should be a substantial catalyst for the firm.
Risks on the Tesla Motors shipment target for the full year have been hanging over the firm since it ended 2014 below target. Mr. Galves, who reckons that closure on Tesla’s 2015 sales will give the firm something of a clean slate with Wall Street, may be a little optimistic.
Tesla Motors stays vulnerable
Heading into 2016 Tesla Motors is still going to be harangued by some of the same major problems that hurt it in 2015. The firm is likely to miss its initial shipment target for 2015, if not its revised number. That will leave it with two years of shipment misses and Wall Street will be skeptical of any new number from Tesla Motors.
If Elon Musk and his new CFO Jason Wheeler are more realistic with their shipment estimates, they may end up spooking Wall Street even further. With the “Musk optimism” factor a realistic number could lead Wall Street to believe that sales growth is slowing unless the firm signals a new methodology quite explicitly.
Tesla Motors Inc is still burning cash, and it’s not likely that the firm is going to be over its Model X building problems by the start of 2016. What’s more it’s going to be jumping head first into the showing off and the rolling out of a new car, the Model 3, in the first months of next year.
In Galves’ view the Model X and sales number problems will be “addressed in a positive way by early Jan when Tesla discloses Q4 vol’s, allowing the Street to re-focus on the long-term story.”
Wall Street still hasn’t quite figured out Tesla Motors, and the firm is hard to predict and forecast. Earnings estimates for 2016 are, as a whole, high right now, but those numbers slumped through 2015. While Wall Street was looking for Elon Musk to show off his first profit this year, instead there’s been a massive loss at Tesla Motors.
The big problem, in the short term, is going to remain the Model X. It’s clear that the EV SUV is still not ready for the prime time. Mass production is still, at the very least, weeks away, and it doesn’t seem to be getting closer. After that issue is overcome, however, there’s going to be plenty of other problems for Elon Musk and his team to deal with.
Mr. Galves may think that Tesla Motors will get something of a clean sheet to start 2016 with, but we know that perception of a firm is heavily associated with its past. Tesla Motors will not be able to shake claims that its sales are slowing in 2016 any more than Apple will.