We continue to estimate that Tesla is running closer to 500-600 Model 3 cars being built per day and is on track to hit the elusive 5,000 per week by late June based on this trajectory and also highlighted by recent comments coming out of Musk. That said, Telsa recently paused production at its flagship Fremont factory in order to work on fixes/bottlenecks to its assembly line of the rollercoaster Model 3 production saga, which appears to be a successful initiative that has helped put Tesla on the “yellow brick road to 5,000 per week”. While its been a bumpy few months for investors with much frustration around the Tesla story, we are starting to see some clear rays of sunshine as the trifecta of Model 3 production ramps, ASP increases on Model 3, and the chances of a capital raise event moving into the background has given investors a clearer green light to own shares at current levels as some of the dark clouds are starting to dissipate. The linchpin of Tesla’s success going forward starts with Model 3 moving in the right direction after months of unforeseen speed bumps, as this remains key for the company’s longterm health and thus limit its cash burn situation which remains a lingering overhang on the stock. The core near focus for Tesla, Musk, and investors over the coming weeks is laser centered around ramping up Model 3 production efforts (on both the base and high-end models) to narrow the gap on the production line reaching the key 5,000 per week mark, which has been its Achilles heel.
While its been an Everest-like uphill battle over the last year with many production speed bumps, it appears the company is significantly ramping up Model 3 production closer to ~4,000 per week with a clear realistic trajectory to finally hit the company’s long stated target goal of 5,000 per week over the coming four weeks in our opinion with a late June timeframe being the sweet spot. However, any further shutdowns and bottlenecks could be the “straw that broke the camel’s back” towards hitting the 5,000 target, which remains the key risk to the story along with the cash burn situation/potentially raising capital in 2019 which appears less likely today than a few months ago. We are closely watching progress on the bottleneck situation as Musk rolling up his sleeves along with his engineering team looking to smooth out some of the clear production issues will be a major positive catalyst for shares moving forward if successful. To reflect our increased confidence on the Model 3 production situation ramping and a reduced cash burn situation on the horizon with black clouds starting to dissipate, we are raising our price target from $320 to $375 while maintaining our Attractive rating.