Tesla has the power to shake up the auto industry if it scales back its product offerings, analyst says
- Tesla could achieve profitability by scaling back its product offerings, Oppenheimer says.
- If the company does need to raise new capital - something CEO Elon Musk says won't be necessary - it could be a good thing.
- Follow Tesla's stock price in real-time here.
Tesla is at a financial crossroads as it struggles to reach profitability, like CEO ELon Musk promised earlier this month. In order to get there, the company needs to scale back its offerings to its core products, an analyst said Wednesday.
"Tesla is essentially a luxury product company dipping into the premium market, and that is OK by us," Colin Rusch, an Oppenheimer analyst, told clients Wednesday. "With an addressable market of ~5M+ vehicles globally and target GM of ~25%, we believe TSLA has significant room for growth with its current offerings, but would benefit from a refresh on Model S/X and a narrower product focus to drive manufacturing costs lower."
Tesla is currently aiming to produce 5,000 Model 3s per week, but those deliveries have been plagued by "production hell" as the company struggles with automation and battery installation problems. Bloomberg's Model 3 tracker estimates that the company is currently at 1,489 per week. This week, the electric-car maker flew in six planes full of robots and manufacturing equipment from Europe to speed up battery production.
In order to reach its lofty goal, many investors suspect Tesla will need to raise more capital, something Musk has said won't happen. Oppenheimer also thinks a cash infusion is likely, but could be a net positive for the stock.
"We believe investors expect that TSLA will need more capital especially given managements acknowledgment of a China factory, another battery factory and the need for capacity to produce Model Y, the new Roadster as well as Semis," said Rusch. "We would view an equity raise as a positive catalyst."
In it's first-quarter earnings report, Tesla said it lost an adjusted $3.35 per share and burned through $1.05 billion. The company forecast that it would achieve profitability and a positive free-cash flow during the third and fourth quarters, ending its cash burn era.
Shares of Tesla have had a choppy start to 2018. The stock is down 11% this year as a downgrade by the credit-rating agency Moody's, plunging bond prices, and a string of AutoPilot crashes have made headlines. Oppenheimer remains on the fence, with no price target for Tesla, but a "perform" rating on the stock, meaning it expects shares to perform inline with the benchmark S&P 500 index.
"While we believe TSLA has the potential to become a transformative technology company and deliver outsized returns for investors, the company's pace of growth, recent questionable decisions around capital allocation, and lack of disclosure keep us on the sidelines," the firm said.
