Berenberg’s Alexander Haissi re-starts coverage on Tesla stock with a Hold rating and $193 price target

Published By: Eunice Gettys on November 22, 2016 10:39 am EST

Berenberg, a Hamburg-based investment firm, has been always bearish on the rising American star, Tesla Motors Inc (NASDAQ:TSLA). After discontinuing coverage on the automaker's stock a few months ago, it re-started covering the shares today with a Hold rating and price target of $193.

The price target implies a potential upside of 4.8% from current price levels. As of 9:46 AM EST, Tesla shares were trading up 0.21% at $184.90.

While expecting it to outperform a possible decline in new auto sales in the US, Berengberg analyst Alexander Haissi believes those positives will be offset by risk associated with the launch of Tesla’s more affordable, compact sedan the Model 3 scheduled by late 2017, as well as its merger with SolarCity.

He has projected a non-GAAP loss per share of $2.5 for this year and $4.3 for 2018, a year when Tesla expects to produce half a million vehicles. Conversely, the Street's consensus earnings per share (EPS) estimates are $0.25 for 2016 and $2.01 for 2018.

Given that the Model S has been undoubtedly successful in North America and Europe and Model X is off to a strong start, the research firm believes that Tesla's story is less about EV adoption and more about the automaker’s capability of becoming profitable. This creates skepticism about the Model 3 success, the firm added.

Since the $35,000 vehicle is priced relative to its competitors, Mr. Haissi thinks that it should create strong demand. He estimates Tesla deliveries to reach 561,500 units by 2020, compared to Tesla’s own projection of about a million deliveries. Additionally, he expects the company’s top-line on a GAAP basis to grow by seven-fold from last year to $27.9 billion by 2020.

Regarding automotive gross margins excluding ZEV credits, the analyst expects the company to peak to 24% next year, mainly due to higher deliveries of the Model X. After the Model 3 launch, he believes the margins will deteriorate.The sell-side firm has projected 15-17% gross margins for the Model 3 during the ramp-up phase; therefore, it expects overall gross margins to fall during 2018 and 2019, and recovering to 22% by 2020. Over the same time, Model 3 gross margins are expected to improve to 20%.