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Electric vehicle maker Tesla Inc (NASDAQ: TSLA) converted another one of its Wall Street skeptics on Monday.
The Tesla Analyst
Jefferies analyst Philippe Houchois upgraded Tesla from Hold to Buy, but cut his price target from $800 to $650.
The Tesla Thesis
In the note, Houchis said COVID-19 and slumping gasoline prices will make the near term a difficult road for Tesla. However, he said the company had four major advantages in the long term:
As the auto industry transitions to electric over time, Tesla will not have to deal with the upgrade costs that the legacy automakers do.
Not only is Tesla gaining market share from legacy automakers, EVs are a positive-sum game.
Tesla is roughly “doubling market coverage with Model Y.”
Tesla is leading an auto technology revolution.
Despite his bullish long-term outlook, Houchois said Tesla investors should expect some challenging 2020 numbers after the company reported 88,400 vehicle deliveries in the first quarter.
Jefferies is projecting $6.1 billion in first-quarter revenue for Tesla, up 34.3% from a year ago. The firm is also projecting auto gross margins will contract by 3.1% to 17.8% and negative free cash flow of $250 million.
“Looking further out, we see Tesla's ability to attract capital as a strong positive as pressure on the industry's transformation accelerates,” Houchois wrote.
Following Tesla’s $2.2 billion first-quarter capital raise, Jefferies is projecting the company will finish the first quarter with $4.6 billion in net debt.
Tesla will likely get a free pass when it comes to its near-term numbers in 2020 due to the COVID-19 disruption. For the remainder of the year at least, Tesla shares will likely continue to trade on the stock’s long-term story rather than its fundamental business metrics.
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