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Stock Analyst Update

Tesla Makes Progress but Faces Long Journey Ahead

The firm's long-term story--not any single quarter's results--will ultimately determine the value of the company.

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 Tesla (TSLA) reported a first-quarter 2018 adjusted EPS loss of $3.35, beating consensus of a loss of $3.48. Total company revenue increased by 26.4% year over year (up 3.7% sequentially) to $3.4 billion, beating consensus of $3.2 billion. We are leaving our fair value estimate in place but we will continue to monitor Model 3 deliveries and adjust our vehicle delivery projections, which can impact our fair value estimate. We think the long-term story on what Tesla can achieve in electric cars, trucks, mobility, and energy generation and storage will ultimately determine the value of the company. We believe the stock trades on option value that, if realized, is still many years away, and therefore we do not think any single quarter’s results are critical to the investment thesis.

Vehicle deliveries increased year over year by 19.7% to 29,997, with the Model 3 sedan comprising 8,182 of the total. Management continues to expect a Model 3 weekly production rate of 5,000 in about two months’ time. Tesla Energy’s revenue nearly doubled year over year to $410 million with storage revenue growth of 161% more than offsetting a 50% decline in energy generation megawatts down to 76 MW. Also encouraging is cash sales' continued increase as a percent of total residential solar deployments (66% in first quarter versus 54% in fourth quarter and 31% in first-quarter 2017) which helps cash flow compared with the old leasing format under SolarCity.

We expect a dramatic improvement in profit and cash flow soon, in either second-quarter--or more likely--third-quarter results, due to a large jump in Model 3 deliveries later this year. Management also has high expectations as they expect Tesla to be profitable on a GAAP basis and have positive cash flow for third and fourth quarter. We calculate adjusted free cash burn for the quarter of $942 million compared with cash burns in fourth-quarter 2017 and first-quarter 2018 of $181.9 million and $436.1 million, respectively.

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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.