Tesla Motors (TSLA) continues to track toward a late-summer launch of its Model 3 and feels increasingly confident it can achieve production goals in the second half of 2017, says Pacific Crest Securities.
That's according to a research report by Pacific Crest analyst Brad Erickson, who said he came away "slightly more positive" after a daylong meeting with Tesla's vice president of investor relations, Jeff Evanson, last week.
While Tesla has maintained its auto-production targets, he wrote in a research note, "We think Wall Street expectations currently are significantly below that."
Tesla aims to ramp up auto production to 500,000 deliveries a year by 2018, as it works to complete the construction of a massive battery plant in Nevada. The Model 3 is the firm's lower-cost, $40,000 or so, model, joining its top-selling Model S and its more recent Model X SUV.
IBD'S TAKE: While Tesla integrates SolarCity and gears up for its Model 3 launch, would-be Tesla-killers are growing. Mercedes and Jaguar showed off their electric cars at the recent L.A. Auto Show.
Erickson maintained a sector weight rating on Tesla. He did not specify a price target but sees "fair value in the low $190s," below the current stock price.
But in a bull case scenario, Erickson sees Tesla stock hitting 400. The key drivers of this would be improved production of auto and batteries, "along with bringing material Model 3 volume to market in 2017." A bear case scenario could see Tesla stock falling to 120, depending on auto-production missteps.
Tesla stock rose 3% to a nearly two-month high of 208.79 in the stock market today, trading above its 50-day moving average for a second week but below the 200-day support level.
Tesla last month said shareholders had overwhelmingly approved its acquisition of SolarCity, a deal that got a thumbs down from a number of analysts. The vote clears the way for Tesla CEO Elon Musk to fulfill his vision of a vertically-integrated alternative-energy company that will sell electric cars, solar power and energy storage packs under one roof.
"Longer-term bulls still believe that electrification of the world's cars will benefit Tesla's vertical approach to delivering energy and mobility, which is certainly plausible, in our view, but it is very difficult to ascribe value to such a nascent market at this point," Erickson wrote. "Tesla still faces two likely upcoming quarters of sequential declines in Model S deliveries, which bears will likely latch onto, and we think Model X demand is still lagging expectations."
As a result, he wrote, "We need more confidence that these two factors are not indicating weaker underlying demand before getting more constructive with our rating."
According to Erickson, Evanson spoke of battery costs being potentially significantly lower than previous estimates, "which would provide investors greater comfort with Model 3's gross margin profile."
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