Investor's Corner
Tesla impresses skeptical Wall St analyst after Model 3 Performance test drive
One of Tesla’s most ardent bulls who adopted a more skeptical stance on the company earlier this year has seemingly been won over after a test drive in the Model 3 Performance. In a recent note, Morgan Stanley analyst Adam Jonas wrote that the Model 3 Performance is impressive, being a vehicle that signifies a positive momentum for electric cars as a whole.
In his note, Jonas stated that workers at the Fremont factory continue to be incredibly busy manufacturing the electric car to meet the demand for the vehicle in the United States. The Morgan Stanley analyst also pointed out that the Model 3 Performance seems to be the best bang-for-the-buck electric car in Tesla’s lineup, giving even more value-for-performance than the Model S 75D.
“Frankly, our enjoyment of the high-spec version of the Model 3 took us by surprise. It’s hard to say how much this matters. But it matters,” Jonas stated.
Overall, Jonas outlined several factors driving expectations for electric cars today, including positive regulatory initiatives in large markets such as China and Europe, the rising price of oil, as well as the increasing number of companies looking into electrified vehicles. These factors, particularly the regulatory initiatives from several regions across the globe, are starting to be felt by legacy carmakers, including Volkswagen AG, which recently expressed its reservations about the EU’s proposal to reduce emissions by 35% on or before 2030.
Morgan Stanley has historically adopted a bullish stance on Tesla stock (NASDAQ:TSLA), though last May, Jonas cut the company’s price target from $376 to $291 – a 23% decrease. Jonas also slashed his long-term operating profit margin forecast for the electric car maker from 14.3% to 9.8%. Explaining his more conservative stance in a note, Jonas wrote that the “lingering manufacturing issues with the Model 3 – most recently at Fremont final assembly” could prevent Tesla from achieving its ambitious self-imposed targets.
“The challenges in ramping up Model 3 production reflect fundamental issues of vehicle design, manufacturing process, and automation levels that can weigh against the profitability of the vehicle,” Jonas wrote.
Just last month, Jonas also released a note stating that Tesla would likely initiate an equity raise of $2.5 billion in Q4 2018. While the analyst did acknowledge the bull thesis that Tesla would not need to raise equity if it generates enough cash, Jonas nonetheless stated that “it is far better for a company to raise when it doesn’t need to.” Considering the Morgan Stanley analyst’s recent note, though, it appears that Adam Jonas might adopt a more optimistic outlook on Tesla once more.
Since ending Q3 2018 with a delivery blitz that resulted in a total of 83,500 vehicles being handed over to customers before September ended, Tesla appears to be going full throttle in its ongoing efforts to ramp the production of the Model 3. Even before Q3’s end, reports already emerged that Gigafactory 1 in Nevada is receiving upgrades in Q4, in the form of new Grohmann machines that can make “module production become three times faster, and three times cheaper.” New battery cell production lines from Panasonic, which were initially scheduled to go online by the “end of 2018,” are set to be completed earlier than expected as well.
Tesla has been mostly quiet about its progress this Q4 so far, but the company has been showing encouraging signs of a strong production ramp. In the first two weeks of October, for example, Tesla registered more than 30,000 new Model 3 VINs, including a record batch of more than 9,000 vehicles in one filing. In a recent announcement, Tesla CEO Elon Musk also revealed that despite the company’s restructuring earlier this year, Tesla now employs a workforce of around 45,000 employees.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.
Investor's Corner
Tesla is ‘better-positioned’ as a company and as a stock as tariff situation escalates
Tesla is “better-positioned” as a company and as a stock as the tariff situation between the United States, Mexico, and Canada continues to escalate as President Donald Trump announced sanctions against those countries.
Analysts at Piper Sandler are unconcerned regarding Tesla’s position as a high-level stock holding as the tariff drama continues to unfold. This is mostly due to its reputation as a vehicle manufacturer in the domestic market, especially as it holds a distinct advantage of having some of the most American-made vehicles in the country.
Analysts at the firm, led by Alexander Potter, said Tesla is “one of the most defensive stocks” in the automotive sector as the tariff situation continues.
The defensive play comes from the nature of the stock, which should not be too impacted from a U.S. standpoint because of its focus on building vehicles and sourcing parts from manufacturers and companies based in the United States. Tesla has held the distinct title of having several of the most American-made cars, based on annual studies from Cars.com.
Its most recent study, released in June 2024, showed that the Model Y, Model S, and Model X are three of the top ten vehicles with the most U.S.-based manufacturing.
Tesla captures three spots in Cars.com’s American-Made Index, only U.S. manufacturer in list
The year prior, Tesla swept the top four spots of the study.
Piper Sandler analysts highlighted this point in a new note on Monday morning amidst increasing tension between the U.S. and Canada, as Mexico has already started to work with the Trump Administration on a solution:
“Tesla assembles five vehicles in the U.S., and all five rank among the most American-made cars.”
However, with that being said, there is certainly the potential for things to get tougher. The analysts believe that Tesla, while potentially impacted, will be in a better position than most companies because of their domestic position:
“If nothing changes in the next few days, tariffs will almost certainly deal a crippling blow to automotive supply chains in North America. [There is a possibility that] Trump capitulates in some way (perhaps he’ll delay implementation, in an effort to save face).”
There is no evidence that Tesla will be completely bulletproof when it comes to these potential impacts. However, it is definitely better insulated than other companies.
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Tesla (NASDAQ: TSLA) received a price target boost from analysts at Truist Securities, but it came with some criticisms based on a lack of information on several things that investors were excited to hear about regarding future vehicles and AI achievements.
Last night, Tesla reported its earnings from the fourth quarter of 2024, and while it had a very tempered financial showing, missing most of the Wall Street targets that were set for it, the stock was up after hours and on Thursday due to the details the company released regarding its plans for 2025.
CEO Elon Musk stunned listeners last night by revealing plans to launch unsupervised Full Self-Driving as a service in Austin in June 2025. It will be the first time Tesla will offer driverless FSD rides in public, something it has been working with the City of Austin on since December.
Tesla to launch unsupervised Full Self-Driving as a service in Austin in June
It also reiterated plans for affordable models to be launched this year, potentially catalyzing annual growth in deliveries, something it said it expects to resume in 2025.
Tesla was flat on deliveries in 2024 compared to 2023.
The positives during the call were enough for Truist Securities analyst William Stein to raise the company’s price target to $373 from $351. However, Stein’s note to investors showed there was something to be desired despite all the good that was revealed during the call:
Stein said there was “not enough ground-truth” during the call and too much of a focus on “cheerleading” the company’s potential releases this year:
“Too much cheerleading; not enough ground-truth. In Q4, TSLA’s ASP weakness drive revenue, GPM, OPM, & EPS below consensus.”
As previously mentioned, Tesla did report weak financials that missed consensus estimates. What saved the call and perhaps the stock from plummeting on these missed metrics was the other details that Musk revealed, especially the FSD launch in Austin in June.
There were also plenty of things related to the affordable models and other vehicles, like the fact that Tesla plans to include things like Steer by Wire, Adaptive Air Suspension, and Rear Wheel Steering, that helped offset negatives.
Stein saw this as a distraction from what should have been reported:
“While CEO Elon Musk played the role of cheerleader, calling for TSLA’s path to massive market cap by leading in autonomy, management was remarkably short on two critical details: (1) info about new vehicles in 2025 and (2) milestones for AI acheivements, especially FSD. We continue to ask ourselves ‘where’s the beef?’ CY26 EPS to $3.99 (from $4.87). DCF-derived PT to $373 (from $351).”
Tesla did detail some AI milestones, like its record-breaking miles per accident on Autopilot, which was a Q4-best of 5.94 million miles. The Shareholder Deck also outlined major upgrades to AI:
“In Q4, we completed the deployment of Cortex, a ~50k H100 training cluster at Gigafactory Texas. Cortex helped enable V13 of FSD (Supervised)1, which boasts major improvements in safety and comfort thanks to 4.2x increase in data, higher resolution video inputs, 2x reduction in photon-to-control latency and redesigned controller, among other enhancements.”
Tesla shares are up 2.11 percent on Thursday as of 12:05 p.m. on the East Coast.
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Tesla has released its Q4 2024 vehicle safety report. Similar to data from previous quarters, vehicles that were operating with Autopilot technology proved notably safer.
The Q4 2024 report:
- As per Tesla, it recorded one crash for every 5.94 million miles driven in which drivers were using Autopilot technology.
- The company also recorded one crash for every 1.08 million miles driven for drivers who were not using Autopilot technology.
- For comparison, the most recent data available from the NHTSA and FHWA (from 2023) showed that there was one automobile crash every 702,000 miles in the United States.
Previous safety reports:
- In Q3 2024, Tesla recorded one crash for every 7.08 million miles driven in which drivers were using Autopilot technology and one crash for every 1.29 million miles driven by drivers not using Autopilot technology.
- In Q2 2024, Tesla recorded one crash for every 6.88 million miles driven in which drivers were using Autopilot technology, and one crash for every 1.45 million miles driven for drivers not using Autopilot technology.
- In Q1 2024, Tesla recorded one crash for every 7.63 million miles driven in which drivers were using Autopilot technology, and one crash for every 955,000 million miles driven for drivers not using Autopilot technology.
Year-over-Year Comparison:
- In Q4 2023, Tesla recorded one crash for every 5.39 million miles driven in which drivers were using Autopilot technology and one crash for every 1.00 million miles driven for drivers not using Autopilot technology.
Key background:
- Tesla began voluntarily releasing quarterly safety reports in October 2018 to provide critical safety information about our vehicles to the public.
- On July 2019, Tesla started voluntarily releasing annual updated data about vehicle fires as well.
- It should be noted that accident rates among all vehicles on the road can vary from quarter to quarter and can be affected by seasonality, such as reduced daylight and inclement weather conditions.
Don’t hesitate to contact us with news tips. Just send a message to simon@teslarati.com to give us a heads up.
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