The problem with a pessimist is he will always figure out a way to find fault and keep crying about it.

CNBC wrote this Tuesday that “Several Wall Street firms are playing down Tesla’s Model 3 production milestone, remaining skeptical over the carmaker’s finances and demand trends.”

Few weeks back, Wall Street was screaming about how Tesla will never make it to 5000 Model 3s in a week. Now they remain skeptical about Tesla’s finances and if Tesla turns profitable or slightly profitable in the third quarter they will start talking about the long list of “one time only” items that helped Tesla during the quarter.

Goldman Sachs analyst David Tamberrino has been a Tesla pessimist for a very long time. He is a pessimist because his reasons keep changing while his bearish stance remains firm.

In March 2018, David Tamberrino forecasted Tesla to deliver 7,000 Model 3s in the first quarter and had a price target of $205. Tesla delivered 8,180. He reiterated his sell rating in April, 2018 and lowered his price target to $195.

This is what he said in April, 2018: (via CNBC)

“We believe the sustainable production rate for the second quarter of 2018 is most likely below the 2,000 vehicle mark the company achieved in the final week of the [first] quarter,” Goldman analyst David Tamberrino wrote Tuesday. “We see the company likely sustaining Model 3 production around the 1,400 per week mark”

The worst part about the assessment was David Tamberrino predicted that Tesla will be forced to raise more capital “as soon as the” third quarter if it wants to build 5000 Model 3s per week “sustainably”.

“Although the company stated that is does not require a capital raise this year, we note that this is predicated upon a sustained 5,000 per week production rate achieved exiting the second quarter of 2018,” Tamberrino explained. “Beyond a required capital raise to continue to fund the launch of the Model 3 program, the company would likely still need outside capital in the future for capacity and product expansion.”

  • Tesla is already in the third quarter.

  • Reached a burst build of 5000 Model 3s per week

  • And now its clear as a blue sky that they don’t need additional capital to sustainably produce 5000 Model 3s.

So now – Mr. David Tamberrino has turned his attention towards Tesla’s net reservations for Model 3.

“Model 3 deliveries did miss our bearish estimates and we see the incremental color on Model 3 net reservations (where the company showed its first declining data point) as incrementally negative,” analyst David Tamberrino said in a note to clients Tuesday.

Tamberrino reiterated his $195 six-month price target for Tesla shares, representing 42 percent downside to Monday’s close.”

  • Tesla said net reservations were more than 450,000 for Model 3 by the end of first quarter.

  • Tesla delivered 18,440 Model 3 in Q2 and had 11,166 vehicles were in transit.

  • According to the company, Model 3 net reservations stood roughly at 420,000 at the end of second quarter 2018.

So if you do the math, then its pretty obvious that the incremental color on Tesla’s Model 3 net reservations is not incrementally negative. Because, if I deduct 18,440 and 11,166 from 450,000 – I get 420,394.

Am I missing something here or I need a calculator?

But Goldman Sachs was not always bearish on Tesla. They had a buy rating on Tesla back in early 2016. Downgraded their rating from buy to neutral in October 2016 and moved their price target from $240 to $185.

At the time of downgrade Goldman said the combination of Tesla and SolarCity, “two high growth, high cash burn businesses” created a ” “a higher risk entity given the combined ongoing capital needs and higher net leverage that would potentially result.”

A completely fair argument as Tesla had to load up SolarCity’s debt on its balance sheet. The cyclical US Auto market was already near its peak sales levels in 2016. Tesla was loading up on debt and there was no Model 3 in production. No one really knew how many among the (nearly) half a million customers will be ready to spend two years waiting for Tesla Model 3.

I may not be an expert in stock valuation but it’s not hard to understand why Goldman decided to downgrade Tesla’s rating in the second half of 2016.

Then Goldman went from neutral to sell by February, 2017.

“The acquisition of SolarCity — which is undergoing its own business model transition — comes at a time when we believe Tesla should be singularly focused on becoming a mass automobile manufacturer.” – David Tamberrino via CNN

Tamberrino correctly predicted that Tesla’s production goals for the Model 3 were too ambitious.

But he also predicted that Tesla will hit an annualized run-rate of 100K model 3s only by the fourth quarter of 2018. Tesla has already reached that goal now, building 28,578 Model 3s in the second quarter of 2018, an annualized run rate of more than 113k Model 3s. A full three to six months before he expected.

So shouldn’t he be changing his views – as Tesla has made a material difference to his forecasts. How can a (highly possible) incremental sales of  30k to +100k cars within the time frame of his calculations make no difference to his valuation about Tesla.

 

7 COMMENTS

  1. This article sounds like it came directly from the Tesla PR department. IT misstates facts and fails when it claims that Tesla can “sustainably produce Model 3’s and therefore doesn’t need to borrow for expansion. That’s total BS – any profits Tesla gains from Model 3 cars will be small and will get smaller as time rolls by and Tesla runs out of customers for their outrageously overpriced “$35.000” vehicle and has to produce those negative profit base Model 3s. Meanwhile, Tesla did not achieve a 5000 per week run rate by operating normally. It was obtained by cutting back on Model S and Model X vehicles and shifting workers, building a new temperorary assembly line, runnning the factory 24/7 and overworking their employees on a grand scale. THAT is why the stock took a dive after the 5,000 goal was reached. It should be noted that Goldman’s estimates , while lower than those achieved in the past, still did not warrant a positive view of the stock. Exceeding an estimate means nothing. Musk’s claim that his run rate would crush the shorts has to be one of the more profound lies that Musk has tweeted, and THAT is saying something. The article is also confused about Tesla’s waiting list and only quotes figures which support its view. Everyone has pointed out the diminishing waiting list. Even this article has to admit that, at best, the list is not growing. Too many battery fires incinerating occupants and an Autopilot that should be banned.

    • Hello Kent Beuchert. Thanks for your comments. But you still fail to answer the question. Why keep moving the goal posts? You misstate the facts in the article and fail to explain anything about the content discussed in the article.

      • And by the way. I am talking about sustainably producing 5000 Model 3s/wk without raising any further capital. But for some reason you avoided talking about that.

        You will have to wait for second quarter balance sheet to figure out if I am correct or wrong. I am confident that I will be correct, as there will be cash balance at that point. But I am not very sure If you are willing to wait for a few more weeks to have this discussion.

        And I am not even getting into the waiting list topic. I have given the numbers, why don’t you break it down for me – using the numbers. I know its hard. Sorry.Let me know If you need any more details on that one. Happy to help you.

        For example: Tesla built 24,761 Model S and X during the second quarter, while also building 28,578 Model 3s. So borrowing workers from Model S and X units was not the reason why Model 3 production ramped up.

        We can have a completely civil conversation, without getting in BS. I am human and I know that I will make mistakes. If you think I am wrong, you are welcome to point it out. But trying to paint shades is a no go area. Because anyone can be a painter in this world. You want to dispute the argument, I am all for it. But get me the facts, numbers and lets have a go.

    • Kent, Shankar is correct, you did not address the points in the article but rather just hit us with more bullet points from the daily email that goes out to writers which lists every conceivable negative on the company in an organized clickbate format. I know this because my friend who works for a major investment magazine gets copied on it, as do i from her.

      There’s even been an article written about it by another writer.

      it seems you also have access to it.

      At any rate what no one has written about is Tamberrino’s ridiculously low rating as an analyst. https://www.tipranks.com/analysts/david-tamberrino

      The only reason he exists at Goldman on Tesla is to be a fall guy. They got a lot of heat for touting the stock while being lead in the syndicate (lead investment bank on offerings for TSLA.) Then they realized there’s more money to be had tying to kill Tesla than support them in offerings for banking fees. So, if your one of these bears that sits on the sidelines heckling the longs when they try and enforce the argument that there are very unethical forces a play trying to take this stock down, I have only one response:

      Dream on.

      Oil and Automotive have a long history of the unethical killing disruptive competition against them. This is an undeniable fact of history. They have not abandoned those practices and Tamberrino is part of a much larger machine. Hence, the propagandic style of his approach.

      Great article Shankar, thank you.
      I have no position in Tesla currently, but have in the past, and done extremely well. I will again once they obtain critical mass, and they will, to overcome these unethical attacks by weaponized short selling and yellow journalism.

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