Tesla will soar to $500 if it can shore up its Model 3 production, analyst says

  • If Tesla can achieve its targeted profit margin for the Model 3, its stock will hit $US500, Berenberg said Monday.
  • The electric-car maker currently takes a loss on each of the sedans, but is hoping to make them profitable this quarter.
  • Follow Tesla’s stock price in real-time here.

Tesla‘s Model 3 could save the electric-car maker from its recent financial woes, one analyst said Monday.

Alexander Haissl, an analyst for German investment bank Berenberg, says shares will hit $US500 – 80% above where the stock was set to open Monday – thanks to high profit margins on the Model 3 sedan.

“From production bottlenecks to quality issues, consensus has largely dismissed the prospect of 25% gross margin on the Model 3,” Haissl told clients. “But the widespread assumption that Model 3 margins can be directly inferred from Model S/X is inherently almost totally flawed.”

The Model 3 also reduces some fixed assembly costs from its predecessor the Model S that helps it get a leg up on traditional automakers, Haissl says.

“Premium content that comes as standard on the Model S lifts the cost per kg to 50% above premium OEMs,” Haissl wrote.

“On the Model 3, much of this content is eliminated or replaced by cheaper alternatives. For example, eliminating the dashboard, smart air suspension, all-wheel-drive and free supercharging, and substituting aluminium bodywork with steel, using a cheaper electric motor, less wiring and lower warranty provisions – plus other efficiencies – reduces material costs by about $US17,000 compared to the Model S.”

In its May letter to shareholders, Tesla said it expects to drag Model 3 production margins from “slightly negative to breakeven in Q2″ and then to its goal of 25% in Q3 and Q4.” CEO Elon Musk has said the entire company will be profitable by then as well, something many sell-side analysts have not yet factored in to their financial models.

On the whole, automotive margins (adjusted) were about 19% for the first quarter, Tesla said.

Starting at $US35,000 the Model 3 has been hawked by the company as its first mass-market, affordable electric vehicle. However,new features announced by Musk on Twitter over the weekend, including all-wheel drive and Autopilot, more than double the sticker price to nearly $US80,000. This could help increase profit margins depending on how many buyers opt for the add-ons.

Shares of Tesla have declined 13% since the beginning of the year as the production issues, a missed Model 3 delivery number, a spate of autopilot crashes and investigations into worker safety have weighed on the stock price. Another six-day production shutdown is coming at the end of May to make fixes to the assembly line, Reuters reported last week.

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