Monday, April 25, 2011

Tesla Motors (NASDAQ:TSLA): Investor meeting yielded significant positives, according to Goldman

Goldman Sachs has some interesting comments on Tesla Motors (NASDAQ:TSLA) after hosting an investor meetings with the company management in New York on April 20 and 21.

The takeaways:

Orders have picked up for the Model S, tracking at over 4,000 from around 3,400 at year’s end. The company expects to have 2012 production sold out soon and believes the first 12 months of production could be sold out by the end of this year. The company is on track to launch the Model S by mid-2012, having now sourced virtually all of its components, providing better cost visibility versus a few months ago. This has also provided added confidence around the 25% gross margin target for the program. With Tesla working successfully though many key design risks, Goldman now sees increased focus on managing vendor risk and large scale production. While the Model S production target remains at 20,000 for 2012, Tesla is configuring the Fremont facility to manufacture 20,000 units on one shift per year, as opposed to the 10,000 originally planed, in order to maximize upward production flexibility. The company has completed the build-out of numerous drivable “alpha” prototypes and expects to produce preproduction “beta” prototypes in the fall which will be shown to the public.

While the company believes it has enough liquidity to complete the Model S program on its own it expects to conduct a $100-$200 mn capital raise in the fall to help cover the upcoming Model X program which has been accelerated as well as a stepped-up investment in vertical integration and additional equipment from the former NUMMI plant which should be able to service Tesla’s production needs for more than five years.

Implications
Management’s reiteration of production and cost targets on the Model S post supplier sourcing and extensive prototype testing is a significant positive and gives the firm increased confidence that investors will be able to exceed the 25% annual returns used to discount their price target.

Notablecalls: While Goldman is not exactly a Tesla bull (Neutral rated, $29 tgt), the note does include some new information that may cause quite a stir among investors:

- Tesla seems to be readying for greater-than-forecast demand for Model S.

- The company has enough cash to complete the Model S program without additional financing. The offering, speculated to be a very n-t event may actually be 6 months away.

- Overall, everything seems to be going as planned. This is a surprise in itself as Tesla is a relatively new company and therefore prone to experience delays of all sorts.

Goldman is calling the info they gleaned from the management a significant positive. That's a strong statement on a high-beta name like TSLA.

Not exactly a trading call but I thought to highlight the comments following the hugely positive note from Morgan Stanley back in March.

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