Following the delivery miss, Baird reduces its Q1 margin estimate on Model X but expects Tesla to hit the full-year guidance

Published By: Ken Bock on April 29, 2016 01:15 pm EST

Tesla Motors Inc (NASDAQ:TSLA) is expected to report first quarter of fiscal year 2016 (1QFY16) earnings after the closing bell on May 04. After missing the quarterly delivery guidance for the quarter, Baird slashed its margin estimate on the premium electric SUV the Model X, which has been facing several quality issues.

Tesla shares continue to head south after the report, leading to a second straight decline. The stock slid as much as 1.56% on Friday and hit a session low of $243.84. By 11:05 AM EDT, the stock was trading down 1.09% at $245.02 and 1.30 million shares were traded compared to average daily trading of 5.94 million.

Following the 1QFY16 delivery report, analyst Ben Kallo believes that the Model X margins must have been impacted due to the slower production ramp. He reduced his margin estimate on the SUV from -5% to -10% and the overall margin from 20.10% to 19.30%, compared to consensus forecast of 20.30%. Additionally, he thinks cash flow break-even or positive cash flow will likely be achieved during the current quarter instead of the first quarter because of weaker-than-expected deliveries.

For 2QFY16, he is projecting deliveries of just 16,500 units for the new Model S and the Model X, whose production is expected to increase throughout the quarter. Mr. Kallo’s estimates show that the company will deliver 52,600 vehicles in the second half of 2016 or 26,300 units per quarter. Although this looks like an enormous ramp for the back half of the year, the analyst thinks that Tesla is on track for the full-year delivery guidance of 80,000-90,000 units.

Regarding the Model 3 reservations, he believes that the company has raised over $400 million in deposits. The deposits along with the $1 billion credit line should assist the company in overcoming short-term needs. Baird reiterated an Outperform rating on Tesla stock, along with a price target of $300.