Goldman Throws Up On Tesla Earnings: Reiterates Sell, Cuts Price Target To 36% As Stock Tumbles

One day after Tesla announced its worst quarter in history, in which it burned a record $1.4 billion in cash...

... Goldman has guaranteed it will not be an underwriter on the next Tesla stock offering - which at the current cash burn will take place in less than 2 quarter - by reiterating its Sell rating on Tesla, and cutting its Price Target to $205, or 36% downside. Here is the summary from Goldman's David Tamberrino who once again unapologetically throws up all over the latest TSLA earnings:

We reiterate our Sell rating on shares of TSLA. We believe the stock should continue to de-rate following 3Q17 results where the company further pushed out its Model 3 production targets for 5k/week to late 1Q18. We believe this further pushes out the potential to ramp to 10k/week production of the Model 3 to at least 2019 (though we continue to model a ramp well below both); this should weigh on gross margins through at least 1Q18 and we do not expect a return to above 20% Automotive gross margin levels until 2H18. Altogether, we believe this indicates that the company’s goal for positive OCF generation should remain elusive until the middle of 2018 — though we still forecast significant FCF burn. On that front, we now believe TSLA will need to raise capital sooner (2Q18 vs. 3Q18 previously). Lastly, we believe the company’s comments on potential China production (3 years out) will be disappointing to investors, which have been confident in TSLA entering the China market with local production in the next one to two years. Our 6-month price target declines to $205, showing 36% downside.

And some more details:

3Q17 results weaker than expected, Model 3 production targets pushed out


TSLA reported a weaker than expected quarter, with an adjusted EBITDA loss of $22mn vs. GSe of $145mn and FactSet consensus of $175mn. Overall, higher operating expenses than expected drove the miss. More importantly, the company pushed out expectations for its 5k/week production target for the Model 3. Altogether, we lower our estimates and believe that Street consensus figures similarly need to be tempered given lower gross margin guidance and a pushed out cadence to Model 3 production. 


Key points — to the negative:

  • Model 3 production target for 5k/week has been pushed out to late 1Q18: Previously the company had targeted late 4Q17, and appeared about one month behind in October when it announced 3Q17 deliveries. However, due to battery pack module issues, this ramp appears pushed out further to the end of 1Q18. That said, the company believes it can exit 4Q17 above 1k/week in production (with comments suggesting potential to be in the 1,000s per week production range).
  • 10k/week Model 3 production now looks pushed to 2019: While this is very much undetermined – as the company needs to get to 5k/week before it can determine where to add capital in order to speed up or duplicate its lines, we believe the company has softly pushed its 10k/week production target into 2019 from “at some point in 2018” previously.
  • New product cadence could be pushed out: The company has previously communicated that new product development costs are largely contingent upon internal cash generation from the Model 3. Future product launches include (1) the Tesla Semi (reveal date of 11/16), (2) the Model Y –a crossover based on the Model 3 platform, (3) a pickup truck, and (4) the second generation roadster. We see the timeline for these products as likely pushed out as (1) the Model 3 remains a drag on cash flow generation from a slower ramp, and (2) the company allocates resources on ramping Model 3 production.
  • Automotive gross margin guidance lowered to approx. 15% in 4Q17: As a result of the production ramp issues, the company has now set a guide of 15% gross margins in 4Q17 – previously we had forecast 16.8% in 4Q17 and consensus was at 19.4%; on our new estimates, we see Automotive gross margins at 13% in 4Q17. Additionally, the company expects that margins will improve sequentially in 1Q18 with (1) the Model 3 achieving breakeven at the end of 4Q17, and (2) improvements to Model S/X margins. We see sub-20% margins continuing until 3Q18 on a slower production ramp (our volumes remain unchanged from the previous forecast). Energy  storage and generation: 4Q17 revenue is expected to n be roughly flat with 3Q17 levels, implying $317.5mn vs. our $471mn, as declines at SolarCity are expected to be offset by increases at Tesla Energy. As result, the company expects gross margin to decline sequentially due to the higher mix of Tesla Energy revenue.
  • Initial guidance for 2018 capex to be flat yoy: We had previously expected a step down of approx. $1bn (from $4bn in 2017 to $3bn in 2018) given Model 3 / gigafactory capex spend in 2017 coming down. To the positive, this means the company sees further growth opportunities and is looking to deploy capital in order to drive revenue; however, when combined with the exacerbated cash burn from lower for longer gross margins, we now see a capital raise in 2Q18 (previously 3Q18).
  • Model S / X production capped by supplier: TSLA noted that its Model S and Model X production is likely constrained at the 100k level given it is sole sourcing its 18650 batteries from Panasonic; at present, TSLA and its partner have not determined if they will deploy more capital to increase capacity.
  • Investor expectations for China should be tempered: The company noted that it would likely begin to spend capex to build out capacity in China in 2019, and noted first production in the region would be around three years from now (i.e., 2020). We believe investors were looking for a more rapid deployment of capital and scaling of production. As a result, we think some of the assumed medium-term growth should be tempered.

Updating estimates — still well below consensus

We lower our 2017-2019 adjusted EBITDA estimates to $500mn/$1,569mn/$2,833 from $871mn/$1,749mn/$2,961 previously to reflect (1) lower Model S/X margins, (2) continued Model 3 margin dilution, and (3) increased operating expenses as the company ramps its sales organization. Our updated estimates are an average 38% below current Street consensus (before the print) and believe estimates need to come down given the slower ramp to Model 3, gross margin headwinds, and higher opex.


We are Sell-rated on TSLA shares. We decrease our 6-month price target to $205 (from $210), as our probability-weighted Automotive segment valuation declines to $171 (from $176) on lower margins and higher capex, and our SolarCity ($4) and Tesla Energy ($30) segment valuation are unchanged.


Meanwhile, even as stormy weather gathers in longsville...

... and the stock tumbles, there is a long way to fall for Tesla before it hits Goldman's $205 price target.

In the meantime, Tesla Bonds are crashing too.

Time for Musk to unveil his time-travel plans...


Clowns on Acid A. Boaty Thu, 11/02/2017 - 10:54 Permalink

The fallacy that is "fossil fuel subsidies". The fossil fuel companies take their capital investment write offs just like any other corporate. Its just that fossil fuel companies have specific requirements to get their fuel out of ground ands distributed to end points of sale.There are no "subsidies" special to fossil fuel companies. There are MASSIVE subsidies to EV's, and State rebates ($7500) in CA, with NO TAX on end point usage ...unlike very high taxes on fossil fuel end point usage.Do some research and stop being a feckin' parrot. 

In reply to by A. Boaty

jimmy12345 Clowns on Acid Thu, 11/02/2017 - 12:44 Permalink

The biggest benefit fossil fuel companies receive is that they don't have to pay for the damage they do to the enviornment and, hence, are priced too low. We all have a worse air, water and environment because of fossil fuels.   Additionally, some of the biggest backers of radical islam are the biggest oil producers (Saudi Arabia, Iran, ISIS).  Oil companies will lose trillions on the rise of EV's so they are doing their best to trash Elon and EV's in the news and social media.   EV's will become significantly cheaper and better than gasoline powered cars in a few years.  Imagine powering your car with the solar panels on your roof and not wasting money on gasoline.  The American consumers will the be the greatest beneficiaries of the rise of EVs.

In reply to by Clowns on Acid

Guderian jimmy12345 Thu, 11/02/2017 - 13:46 Permalink

Do some research.It's a dead horse.Tech is crap, Batteries an eco desaster, charging per mile vs refuelling per mile takes forever, battery desposable a desaster, power plants not up to it, power grid not up to it, power cables in communities and cities not up to it. E-cars are a desaster to both economy and ecology.Ahain; do some research!

In reply to by jimmy12345

lo574 World Cash Day Thu, 11/02/2017 - 11:11 Permalink

You clearly haven't realized that MAGA is for the wealthy.  Not us living paycheck to paycheck.  His elimination of regulations help corporations.  The earth and our health will pay the price.  Flint have good water yet?  pfft.  His proposed tax cuts throw "us" pennies and majority given to the wealthy.  Cuts to Medicare and Medicaid, cuts in student loan assistance won't hurt the wealthy.  Only you and me.  Get it straght in your head.  He's talking to the 1% when MAGA spews out of his mouth.  End subsidies to corporations?  It'll never happen

In reply to by World Cash Day

Winston Churchill lo574 Thu, 11/02/2017 - 12:42 Permalink

You're blinded by your own bullshit,while his policies may benefit some oligarchs,there no way they can't in thisworld,overall they would benefit many across the whole population.However the paid off congresscitters aresure to fuck up on the details,because thats what their "donors" want.The whole mess is so far out of control, burning it all down is the only reform measure that could possiblywork.

In reply to by lo574

youngman Thu, 11/02/2017 - 09:42 Permalink

He calls it a bottleneck....I call it lack of sales....all the libs that wanted one have them....and now they are finding out its just a toy for their garage......

Freddie youngman Thu, 11/02/2017 - 10:38 Permalink

Musk also "addressed" the production bottleneck on the Model 3.   LOL!  They are putting them together by hand.  Probably a bunch of Cally Mexicans and other feral people with screwdrivers and air guns trying to screw together a glorified golf cart.Looks like the end of the road is edging closer for Tesla.    Or their "runway" of opportunity is running out of tarmac.  It is a coal car.  The Germans making turbo diesel hybrids would probably have the smallest carbon footprint.  BMW's i3 and i8 have a much better energy rating then Teslas.

In reply to by youngman

artvandalai Thu, 11/02/2017 - 09:47 Permalink

Time to announce a new initiative that continues to make himself out to be the futurist millenial hero that millenials expect. How about putting a Tesla plants on all the four moons of Jupiter.Actually when I think about it he probably knows that putting plants on all four moons would be pretty stupid. He'll probably just make it three.

BurningBetty Thu, 11/02/2017 - 09:57 Permalink

These are nothing more than symptoms of free money by the Fed. and CB intervention in the equities that ballooned the valuation of these worthless companies into the stratosphere. I admire Elon Musk for his visions but that's all they are. Visions. Making bases on Mars by 2022? Are you F kidding me. We don't even have anything to show for other than satellites in space or anything concrete on the Moon and we are to believe that we are going to have bases on Mars? In an enviroment completely inhabitable for humans. Not to mention the time it will take to get out there. I am not saying it's not possible but people are damn gullible and swallow anything these days. It's the new belief system when a company that's been burning cash hand over fist is valued more than companies that are delivering tens of thousands of cars with a customer base 20x that of Tesla. 

Freddie BurningBetty Thu, 11/02/2017 - 10:32 Permalink

This day in history 100 years ago Lord Balfour signed the declaration for Baron Rothschild.  The idiots over at Free Republic doing Israel firster crap.  It was in American Thinker web site about the wonderful creation.   Rothschilds have been behind most of the world wars, civils wars and central banks.   Elon is one of their boys. 

In reply to by BurningBetty

snblitz BurningBetty Thu, 11/02/2017 - 13:28 Permalink

You send robot ships to Mars with nuclear reactors on board.

The robot ships drill for water/ice/carbon and then synthesize rocket fuel. Now you have a return capability without having to carry the fuel all the way there.

Simple technology developed long ago.

It would probably take 5 to 10 years after which we could start sending humans.

In reply to by BurningBetty