Investor's Corner
Tesla seems to be preparing the Model 3 for a 6,000/week production push
As Tesla heads towards its Q2 2018 financial results and earnings call, the electric car maker seems to be showing signs that it is gearing up for yet another significant Model 3 production push.
In an interview with Bloomberg Businessweek earlier this month, Elon Musk described the Model 3 ramp as a “bet-the-company” situation — a scenario in which the vehicle’s failure would equate to Tesla’s likely collapse. It was a risky gamble, and it gave Musk what he called “permanent mental scar tissue,” but with the company’s milestone at the end of Q2 2018, when it managed to produce 5,000 Model 3 per week, the end of Tesla’s manufacturing hell appears to be within reach.
To fully get out of production hell, Tesla would need to manufacture the Model 3 at scale and at a sustainable rate — a feat that has proven incredibly challenging for the electric car maker. Over the first half of July, signs were abounding that Tesla was once more defying the odds and maintaining its optimum manufacturing rate for the electric car, with mass sightings of Model 3 being transported, test drives for the vehicle being offered, and mass VIN registrations numbering more than 19,000 being filed in a two-week period. If Bloomberg‘s ever-evolving Model 3 tracker is any indication, however, Tesla’s production rate for the electric car appears to have tapered down recently.
While the recent production drop suggested in Bloomberg‘s tracker might appear negative, the publication’s model also forecasts an upcoming spike in Model 3 production. As of writing, a projection for the next few weeks points to Tesla manufacturing 6,000 Model 3 per week. Over the past few months, these instances of slowdowns followed by sudden bursts that reach record production levels have happened several times. In Q2, shutdowns of the Model 3 line corresponded to the installation of upgrades that gave Tesla the capacity to produce more vehicles than before.
Back in April, Tesla shut down the production of the Model 3 to roll out improvements that enabled the company to hit a manufacturing rate of 3,000-4,000 vehicles per week. In May, another set of upgrades were installed that allowed Tesla to get closer to its then-elusive target of producing 5,000 Model 3 per week. Based on the rationale behind Tesla’s previous production shutdowns, it appears that the electric car maker could be in the process of improving the capacity of its Model 3 line once more.
In a way, the slowdown in production reflected in Bloomberg‘s tracker was teased in Tesla Senior Director of Investor Relations Aaron Chew’s meeting with investors and analysts earlier this month. During the meeting, Chew reportedly noted that Tesla is aiming to hit a sustainable production rate of 5,000-6,000 Model 3 for the rest of the third quarter. After this point, Tesla’s ramp for the vehicle would be less radical, with the company reportedly targeting a pace of 7,000 cars per week for Q4 2018, and 10,000 Model 3 per week by mid-2019. Chew also reportedly noted that Tesla’s GA3 assembly line was only running at ~4,000 vehicles per week at the end of Q2 2018, and that the company was only able to hit its 5,000 Model 3 per week target because of an extra ~1,000 vehicles that were manufactured from GA4. Thus, Tesla’s recent slowdown in Model 3 production could correspond to the installation of upgrades for GA3 that would allow it to produce a steady rate of 5,000, or even 6,000 vehicles per week on its own. If these assumptions prove correct, Bloomberg‘s forecast pointing to a 6,000 Model 3 production week definitely becomes plausible.
Tesla is currently attempting to hit profitability this third quarter. To accomplish this goal, the Model 3’s production has to be optimized. Teardowns of the vehicle, both from Germany and in the United States have been unanimous in the conclusion that the Model 3 is profitable. Detroit’s Sandy Munro even noted that the Long Range RWD version of the vehicle could give Tesla as much as 36% worth of profits. At this point, the only thing standing between Tesla and profitability is its capability to scale and sustain the Model 3’s production. If the company achieves this, it would likely prove to be a hard-fought victory for Elon Musk and the Tesla team.
Elon Musk
Tesla CEO Elon Musk’s $1 trillion pay package hits first adversity from proxy firm
ISS said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”
Tesla CEO Elon Musk’s $1 trillion pay package, which was proposed by the company last month, has hit its first bit of adversity from proxy advisory firm Institutional Shareholder Services (ISS).
Musk has called the firm “ISIS,” a play on its name relating it to the terrorist organization, in the past.
“ISIS”
— Elon Musk (@elonmusk) September 27, 2021
The pay package aims to lock in Musk to the CEO role at Tesla for the next decade, as it will only be paid in full if he is able to unlock each tranche based on company growth, which will reward shareholders.
However, the sum is incredibly large and would give Musk the ability to become the first trillionaire in history, based on his holdings. This is precisely why ISS is advising shareholders to vote against the pay plan.
The group said that Musk’s pay package will lock him in, which is the goal of the Board, and it is especially important to do this because of his “track record and vision.”
However, it also said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”
The release from ISS called the size of Musk’s pay package “astronomical” and said its design could continue to pay the CEO massive amounts of money for even partially achieving the goals. This could end up in potential dilution for existing investors.
If Musk were to reach all of the tranches, Tesla’s market cap could reach up to $8.5 trillion, which would make it the most valuable company in the world.
Tesla has made its own attempts to woo shareholders into voting for the pay package, which it feels is crucial not only for retaining Musk but also for continuing to create value for shareholders.
Tesla launched an ad for Elon Musk’s pay package on Paramount+
Musk has also said he would like to have more ownership control of Tesla, so he would not have as much of an issue with who he calls “activist shareholders.”
Investor's Corner
Barclays lifts Tesla price target ahead of Q3 earnings amid AI momentum
Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.
Barclays has raised its price target for Tesla stock (NASDAQ: TSLA), with the firm’s analysts stating that the electric vehicle maker is approaching its Q3 earnings with two contrasting “stories.”
Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.
Tesla’s AI and autonomy narrative
Levy told investors that Tesla’s “accelerating autonomous and AI narrative,” amplified by CEO Elon Musk’s proposed compensation package, is energizing market sentiment. The analyst stated that expectations for a Q3 earnings-per-share beat are supported by improved vehicle delivery volumes and stronger-than-expected gross margins, as noted in a TipRanks report.
Tesla has been increasingly positioning itself as an AI-driven company, with Elon Musk frequently emphasizing the long-term potential of its Full Self-Driving (FSD) software and products like Optimus, both of which are heavily driven by AI. The company’s AI focus has also drawn the support of key companies like Nvidia, one of the world’s largest companies today.
Still cautious on TSLA
Despite bullish AI sentiments, Barclays maintained its caution on Tesla’s underlying business metrics. Levy described the firm’s stance as “leaning neutral to slightly negative” heading into the Q3 earnings call, citing concerns about near-term fundamentals of the electric vehicle maker.
Barclays is not the only firm that has expressed its concerns about TSLA stock recently. As per previous reports, BNP Paribas Exane also shared an “Underperform” rating on the company due to its two biggest products, the Robotaxi and Optimus, still generating “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” BNP Paribas, however, also estimated that Tesla will have an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040, and more than 11 million FSD subscriptions by 2030.
Investor's Corner
BNP Paribas Exane initiates Tesla coverage with “Underperform” rating
The firm’s projections for Tesla still include an estimated 525,000 active Robotaxis by 2030.
Tesla (NASDAQ: TSLA) has received a bearish call from BNP Paribas Exane, which initiated coverage on the stock with an Underperform rating and a $307 price target, about 30% below current levels.
The firm’s analysts argued that Tesla’s valuation is driven heavily by artificial intelligence ventures such as the Robotaxi and Optimus, which are both still not producing any sales today.
Tesla’s valuation
In its note, BNP Paribas Exane stated that Tesla’s two AI-led programs, the Robotaxi and Optimus robots, generate “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” The research firm’s model projected a maximum bull-case valuation of $2.7 trillion through 2040, but after discounting milestone probabilities, its base-case valuation remained at $1.02 trillion.
The analysts described their outlook as optimistic toward Tesla’s AI ventures but cautioned that the stock’s “unfavorable risk/reward is clear,” adding that consensus earnings expectations for 2026 remain too high. Tesla’s market cap currently stands around $1.44 trillion with a trailing twelve-month revenue of $92.7 billion, which BNP Paribas argued does not justify Tesla’s P/E ratio of 258.59, as noted in an Investing.com report.
Tesla and its peers
BNP Paribas Exane’s report also included a comparative study of the “Magnificent Seven,” finding Tesla’s current market valuation as rather aggressive. “Our unique comparative analysis of the ‘Mag 7’ reveals the extreme nature of TSLA’s valuation, as the market implicitly says TSLA’s 2035 earnings (~55% of which will be driven by Robotaxi & Optimus, w/ zero sales now) have the same level of risk & value-appropriation as the ‘Mag 6’s’ 2026 earnings,” the firm noted.
The firm’s projections for Tesla include an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040 priced above $20,000 each, and more than 11 million Full Self-Driving subscriptions by 2030. Interestingly enough, these seem to be rather optimistic projections for one of the electric vehicle maker’s more bearish estimates today.
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