Deutsche Bank Says -- Barron's Blog
May 14 at 10:05
By Ben Levisohn
April showers have brought May flowers--and May has brought losses for
Tesla Motors ( TSLA) with it.
Shares of Tesla Motors have dropped 9.3% so far this month, and the
upstart automaker can't blame its weakness on the market--the S&P 500 has gained
0.5% so far in May--or weakness in automakers-- Ford ( F) has dropped 2%, while
General Motors ( GM) has risen 1.3%. It can't even blame the momentum selloff,
as the iShares MSCI USA Momentum ETF ( MTUM) has gained 1.5% so far this month.
So that leaves, Tesla's earnings, which were better than analysts had
forecast but triggered concerns about higher costs and lower margins. Deutsche
Bank's Rod Lache and team think those worries are overdone:
Based on disclosures in Tesla's 10Q, we now believe that first-quarter
margins were better than they appeared, supporting expectations for significant
intermediate term earnings despite a significant increase in operating expenses.
4Q13 appears to have been a legitimate 25% margin quarter, after netting out a
warranty gain and a one-time charge which offset the gain. Tesla disclosed
changes in pre-existing warranties of $8.12MM in 1Q14 (this likely includes
the $2MM one-time charge for additional underbody protection Tesla mentioned in
their Q1 release). Excluding this charge, Tesla achieved gross margin of 26.6%
vs. the 25.4% reported. All of this makes our 26.1% gross margin est for Q2
appear quite achievable, and that the company should be able to reach at least
28% by 4Q14 even if there is some moderation of mix.
Lache rates Tesla Neutral with a $220 price target "based on valuation,
and based on our belief that upside/downside risks for Tesla are relatively
Shares of Tesla Motors have gained 0.2% to $190.48 at 10:01 a.m., while
General Motors has dropped 0.7% to $34.91 and Ford is off 0.2% at $15.83.