Tesla Motors Inc (TSLA) Misses On Deliveries Again, Time To Sell TSLA Stock?

Repeated misses on delivery targets is a cause of concern for Tesla Motors Inc (NASDAQ:TSLA) investors. The delivery miss could impact its Q4 earnings.

– Tesla reported a miss on Q4 and FY2016 delivery numbers due to “short-term production problems”.

– Should investors be wary of Tesla’s perennial “short-term production problems”?

– Watch out for the commentary from analysts after today’s visit to the Gigafactory.

On Tuesday, electric car maker Tesla Motors Inc (NASDAQ:TSLA) came out with its Q4 and FY2016 delivery numbers, and they weren’t good. For the third time in 2016, the Palo Alto California-based company missed on its own delivery guidance, sending Tesla stock nearly 2% lower in after-hours trade. The stock is down more than 2.5% in the pre-market. Tesla attributed the miss to “short-term production challenges starting at the end of October and lasting through early December from the transition to new Autopilot hardware”.

Q4 Earnings Could Take A Hit

Tesla announced that it delivered 22,200 cars in Q4 against its own guidance of little over 25,000 cars which it had reiterated in Q3 stating “We expect Q4 deliveries and production to be at or slightly above Q3″. For the full year, total delivery numbers came in at 76,200 against the guidance of 79,200. What makes the miss worse is that the guidance of 79,200 cars was a revised guidance. In a Q4 2015 letter to shareholders, Tesla had guided for 80,000-90,000 deliveries during FY 2016.

The miss on delivery numbers by around 2900 units will result in a revenue shortfall of around $250 million in Q4. This will also have a negative impact on Tesla’s profitability and cash flows. So, overall, Q4 earnings may not be a great one for Tesla. This is in contrast to Q3 where Tesla not only reported a strong revenue number but also a profit for the first time.

Also read: Buy Tesla Motors Inc (NASDAQ:TSLA) (TSLA) Stock Now Or Regret It Later

Can Tesla Meet Other Delivery Commitments?

But more than the Q4 miss, it is the repeated misses on the guidance which is making investors nervous. Missing 3 of the last 4 delivery guidances doesn’t speak too highly of a company and erodes its credibility. And more than ever, Tesla needs investors to believe in its story. The repeated misses has also called into question Tesla’s other guidances including “Model 3″ launch and its 2018 production target. Mr. Musk had set a production target of 500K units by 2018, which many believe Tesla will not be able to achieve given its current annual production of 93,000 cars.

The skepticism is growing even on the “Model 3″ front. Tesla has scheduled the launch of its low priced “Model 3″ in the second half of this year. But many analysts are skeptical of this timeline, especially given Tesla’s past performance. Morgan Stanley analyst and a Tesla bull, Adam Jonas believes that “Model 3″ will hit the market only in 2018. In a report (1) he had said:

“…our base case is for a launch in late 2018. We have taken this conservative approach to allow for the probability that Tesla will choose to prioritize the quality, cost, performance and lifesaving technology of the vehicle. While Tesla still adopts a high level of vertical integration, we expect the Model 3 to rely even more extensively on 3rd party suppliers than the Model S, potentially increasing the scope of supply-related factors outside of the company’s control.”

Tesla is heavily relying on “Model 3″ to drive its profitability and revenues. The company has already received more than 400K pre-orders for the car. So any delay on this front will not go down well with the shareholders. And Tesla knows this. According to a recent report by electrek (2) “Tesla is going “all out” to race the Model 3 to production”. If Tesla delivers on its Model 3 promise, then expect its stock price to go much higher.