CyberDutchie
Active Member
Another price target cut by Morgan Stanley:
Could Negative Tesla Market Sentiment Affect the Business Itself? Price Target to $240
We expect the 45% YoY decline in 1Q Model S+X volume will largely continue throughout 2019, impacting mix, margin and cash flow. We mark to market our forecasts following disappointing 1Q deliveries and lower our target to $240. Reiterate Equal-weight.
Key changes to our earnings forecast:
Delivery volume. We have cut our total company full year 2019 delivery forecast to 344k units vs. 362k units previously. We are now below the low end of Tesla’s 360k to 400k range. Over 100% of our delivery reduction is from Model S and X, which we now expect to average 14,800/quarter through the remainder of the year. Our FY Model 3 forecast rises slightly to 287,500.
Revenues. Our 2019 total company revenue forecast falls 7.5% on the delivery revision, exacerbated by mix degradation from Model S and X declines. Our revised auto revenue forecast calls for a 3% YoY decline in both 3Q19 and 4Q19 revenue.
Automotive gross margin. We have revised our 1Q19 US GAAP auto gross margin forecast to 18.4% from 22.3% previously. Going forward, we forecast US GAAP auto gross margin to improve to 20.9% in 2Q, 21.9% in 3Q and 22.2% in 4Q. For the full year, our 2019 GAAP auto gross margin has been revised down 150bps to 21.1%. Our FY forecast includes slightly more than $400mm of ZEV (zero emission vehicle) credit revenue, which is worth 140bps of margin.
EPS. FY19 US GAAP EPS revised to negative $6.55 from negative $3.59 previously. Our 2020 EPS forecast falls to $0.21 from $2.64 previously. Our 2025 EPS forecast falls to $14.78 from $15.88 previously.
Cash flow. Our forecast for 1Q19 free cash flow has been revised to negative $1.1bn vs. negative $935mm previously. For 2Q19, we forecast just under $200mm negative FCF. For the full year, we forecast Tesla consumes $1.3bn of free cash flow before ABL borrowing actions.
Gross liquidity. We forecast Tesla ended 1Q19 with just under $2bn in cash. Our forecast includes $200mm of borrowing from their warehouse line. Given our FCF forecast and estimates for new borrowing, we estimate Tesla gross cash bottoms in 2Q19 at just under $1.9bn
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Key changes to the narrative:
Can negative sentiment around the stock begin to impact the actual business? We are increasingly concerned about the impact that investor concerns over Tesla’s financial strength and forward looking liquidity position could potentially have on employee morale, customer perceptions and standing with key stakeholders and suppliers.
If and how Tesla may have access to capital is a top theme in discussions with investors. We continue to model a $2.5bn equity raise in 3Q19, which remains unchanged following the 1Q sales update. Even bulls we speak with are in support of the company raising equity capital sufficient in amount to quell questions about its potential financing needs.
Reiterate Equal-weight. The fundamental narrative around Tesla appears more clouded than we have seen in several years. Signs of weakening demand have raised long-standing questions about the company’s ability to fund itself as an independent company.
Could Negative Tesla Market Sentiment Affect the Business Itself? Price Target to $240
We expect the 45% YoY decline in 1Q Model S+X volume will largely continue throughout 2019, impacting mix, margin and cash flow. We mark to market our forecasts following disappointing 1Q deliveries and lower our target to $240. Reiterate Equal-weight.
Key changes to our earnings forecast:
Delivery volume. We have cut our total company full year 2019 delivery forecast to 344k units vs. 362k units previously. We are now below the low end of Tesla’s 360k to 400k range. Over 100% of our delivery reduction is from Model S and X, which we now expect to average 14,800/quarter through the remainder of the year. Our FY Model 3 forecast rises slightly to 287,500.
Revenues. Our 2019 total company revenue forecast falls 7.5% on the delivery revision, exacerbated by mix degradation from Model S and X declines. Our revised auto revenue forecast calls for a 3% YoY decline in both 3Q19 and 4Q19 revenue.
Automotive gross margin. We have revised our 1Q19 US GAAP auto gross margin forecast to 18.4% from 22.3% previously. Going forward, we forecast US GAAP auto gross margin to improve to 20.9% in 2Q, 21.9% in 3Q and 22.2% in 4Q. For the full year, our 2019 GAAP auto gross margin has been revised down 150bps to 21.1%. Our FY forecast includes slightly more than $400mm of ZEV (zero emission vehicle) credit revenue, which is worth 140bps of margin.
EPS. FY19 US GAAP EPS revised to negative $6.55 from negative $3.59 previously. Our 2020 EPS forecast falls to $0.21 from $2.64 previously. Our 2025 EPS forecast falls to $14.78 from $15.88 previously.
Cash flow. Our forecast for 1Q19 free cash flow has been revised to negative $1.1bn vs. negative $935mm previously. For 2Q19, we forecast just under $200mm negative FCF. For the full year, we forecast Tesla consumes $1.3bn of free cash flow before ABL borrowing actions.
Gross liquidity. We forecast Tesla ended 1Q19 with just under $2bn in cash. Our forecast includes $200mm of borrowing from their warehouse line. Given our FCF forecast and estimates for new borrowing, we estimate Tesla gross cash bottoms in 2Q19 at just under $1.9bn
(...)
Key changes to the narrative:
Can negative sentiment around the stock begin to impact the actual business? We are increasingly concerned about the impact that investor concerns over Tesla’s financial strength and forward looking liquidity position could potentially have on employee morale, customer perceptions and standing with key stakeholders and suppliers.
If and how Tesla may have access to capital is a top theme in discussions with investors. We continue to model a $2.5bn equity raise in 3Q19, which remains unchanged following the 1Q sales update. Even bulls we speak with are in support of the company raising equity capital sufficient in amount to quell questions about its potential financing needs.
Reiterate Equal-weight. The fundamental narrative around Tesla appears more clouded than we have seen in several years. Signs of weakening demand have raised long-standing questions about the company’s ability to fund itself as an independent company.
Patrick McGeeVerified account @PatrickMcGee_
