Wall Street Waves Caution Flag on Tesla Plant as Investors Snap Up Shares
Touted as the future of high-tech manufacturing, Tesla Motors Inc.'s Gigafactory was praised far and wide after it began production Wednesday, but Wall Street analysts had a different take.
Goldman Sachs Group Inc. and Morgan Stanley were among firms raising concern that the facility did little to change their views on the company's short-term financial prospects just a day after the electric-car maker reported fourth-quarter deliveries that missed its own forecasts.
"Overall we found the tour helpful in illustrating the layout and process for manufacturing lithium ion battery cells and packs for its automotive and energy products,'' the team at Goldman, led by David Tamberrino, write. "However, there was a lack of quantitative updates for 2017 and the ramp expectations.''
The partial opening of the Nevada factory marked a major milestone for Tesla, as it started production of battery cells that will power energy storage products and eventually its Model 3 electric car. While investors have sent Tesla shares soaring more than 20 percent in the past month, partly in anticipation of the factory's debut, Wall Street's focus remained fixed on profits, with Morgan Stanley's Adam Jonas raising concern over the factory's costs.
"Tesla’s gigafactory is real: Real tech. Real innovation. Real jobs. Real big capital requirements,'' he wrote in a note to clients. Tesla "remains dependent on investor support to complete the mission.''
He also worried about a lack details on how and when the Model 3 would benefit, though he remained bullish about the vehicle's potential for advancements in autonomy and additional body styles.
Pacific Crest Securities LLC analyst Brad Erickson said the tour left "much to the imagination," and that investors seemed disappointed by missing details on how the plant would help reduce costs.
Tesla shares slipped 1.5 percent Thursday to $224.57, about 10 percent below the current average 12-month price target for shares, according to data compiled by Bloomberg.
This start of production marked the third successful target Tesla met for the New Year, with billionaire founder Elon Musk's firm also fulfilling its promise to complete a massive battery storage project and to roll out promised software upgrades to cars equipped with new Autopilot hardware.
The full activation of the Gigafactory, and doing so on time, carries extra importance for the firm after missing almost every aggressive product milestone it set for itself over the last decade.