UBS reiterates a Buy rating after Tesla's Q3 delivery report and AI Day. Although deliveries are lower than expected, production is in line with expectations. The firm sees continuous progress in the development of FSD, and so far does not have high expectations for Optimus.
UBS analysts, in a note to clients, commented on Tesla's Q3 2022 production and delivery report. In addition, they mentioned AI Day and the updates presented there. Given the new information, the firm remains bullish and reiterates a Buy rating and a $367 price target for the stock.
Tesla delivered 343,830 vehicles in Q3 (325,125 Model 3/Y, 18,672 Model S/X), reflecting a miss against consensus (364,000) and UBS estimates (365,000). However, the firm noted that production was in line, with 365,923 cars. In a press release, Tesla explained that “as our production volumes continue to grow, it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks. In Q3, we began transitioning to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the quarter—these cars have been ordered and will be delivered to customers upon arrival at their destination.” The manufacturer indicated that all vehicles are customer vehicles and investors are more focused on demand as delivery times shorten.
The firm believes Tesla is in a better position for a more balanced market and expects some tactical price action to ensure its growing capacity is fully utilized. The analysts said, “with ~30% auto gross margin, we think Tesla is better positioned than anyone else to adjust pricing downwards if needed while defending strong margins and generating further economies of scale.” In Q3, a ~20k delivery shortfall could mean Tesla remains below the 30% gross vehicle margin (excluding credits) that UBS would have expected with its higher delivery valuation.
Analysts also talked about Tesla AI Day, which took place on September 30. The company unveiled a prototype of its humanoid robot, Optimus, which was able to walk across the stage and wave its arms. The manufacturer showed videos in which the robot performs simple tasks on the factory floor and in office space. The final design was also shown, but it was not yet fully functional. Elon Musk expects the robot to be available before 2027, priced below $20,000.
According to UBS, information about FSD was important on AI Day. Tesla now has 160,000 FSD Beta testers and is expected to roll out to all FSD buyers/subscribers by the end of 2022. The company warned that regulation in different markets may take different times and the global deployment of software will directly depend on this.
UBS analysts said they did not have very high expectations for the robot's progress and timing, so they considered it an ”in-line event.” What was important to them was the progress of FSD, and it seems to be “continuous,” even though no unexpected milestones have been announced. This seems reassuring to the firm, even though Tesla's volatile timeframe skeptics will only believe it when they see it.
© 2022, Eva Fox | Tesmanian. All rights reserved.
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