Posted on May 09, 2017 by Matt Pressman
After last week's earnings call from Tesla [NASDAQ: TSLA], analysts have been trying to decipher Elon Musk's statements in order to predict the company's future. According to reports from CNBC and Markets Insider*, Wall Street analyst George Galliers from Evercore ISI forecasts that "Tesla will do in three years what it took Porsche 10 years to do... following the buildout of the Model 3, [as] Tesla has the potential to achieve sustainable gross margins comparable to those of high-end German auto brands, while growing more like a rapidly advancing Chinese automaker."
Above: Tesla Model S and Porsche Panamera (Image: Auto Express UK)
Specifically, Galliers wrote, "Tesla is an extreme growth story with unit sales +51% last year and automotive revenues +70%. The introduction of the Model 3 will support similar/ stronger growth this year and next. Meanwhile, further out, the company expects the growth rate to be maintained, with CEO Musk commenting last year that he expects 'roughly 50%ish [unit] growth from there '. To put Tesla’s growth in context, we note it took Porsche 10 years and four product lines to grow from c35k units to >100k. Tesla is on course to achieve similar growth in only 3 years."
Above: Tesla 2016 unit sales growth versus competitors (Source: Markets Insider* via Evercore ISI)
So what about Tesla's margin? "Tesla's unadjusted gross margin of 25 percent last year is impressive by any standard," Galliers explained adding that "Tesla has the potential to achieve margins that are double those of US peers today." Furthermore, it's reported that gross margins of 25 percent "would place it above BMW and Mercedes and just below Porsche."
Above: Tesla Model S in front of a Porsche Panamera S E-Hybrid vs BMW M5 30 (Image: Car Magazine UK)
Above: A Tesla Model 3 release candidate performs highway testing (Youtube: Electrek.co)
Galliers concludes, "Tesla’s top-line developments over coming quarters will ultimately be determined by the launch cadence of the Model 3." He believes that the risks surrounding the Model 3 have diminished and that orders for the Model 3 "are without precedent." Galliers said that the Model 3 represents the largest preorder event in automotive history with hundreds of thousands preorders in place, and expects it to be a hit.