Tesla Inc (Nasdaq: TSLA) stock continued to rise on Thursday after a report that one of its key suppliers believes Model 3 production is finally starting to pick up. Although the EV maker has not provided another update on production since its last earnings report, the report is just one of a growing number of signs that there could soon be a lot more Model 3 cars on the road. Tesla stock has been riding on the Model 3’s success all of this year and, to some extent, some of last year, and analysts expect that to continue for now.
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Model 3 may finally be ramping up
Jefferies analyst Philippe Houchois said in a note to investors on Thursday that he met with Tesla stock investors along with the automaker’s senior director of investor relations, Martin Viecha. He said that Viecha was being careful not to say anything about Model 3 production beyond what was said on the last earnings call, but sentiment on Tesla stock is being helped by positive news around orders and the company’s electric semis.
The most encouraging thing to arise recently was commentary from Panasonic, which manufactures Tesla’s battery packs. He noted that the company said Model 3 production could be picking up because it “thinks” all the work that was being done manually has now been automated. However, he also pointed out that not all the issues Tesla was dealing with were related to the battery cells.
How many Model 3s will be built in Q4?
Houchois is currently still estimating that Tesla will build 7,500 Model 3 cars during the fourth quarter. However, that depends on whether automation is finally starting and if manual assembly of battery packs continued parallel to production in the meantime. His estimate also depends on spend testing on other parts of the assembly process indicates 500 to 1,000 cars per week.
He continues to rate Tesla stock at Underperform with a $240 price target, but he added that he’s not cautious because of the production issues going on a long time. Rather, he’s concerned about the need for more capital and about valuation. He doesn’t believe that Tesla’s current integration business model will be able to provide high enough margins and return on invested capital to support current multiples.
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