Earlier this week, Tesla Motors Inc (NASDAQ:TSLA) finally put its ballyhooed gigafactory into motion, beginning the production of lithium-ion batteries in Sparks, Nevada in front of a crowd of a few hundred interested parties. TSLA stock soared on the heels of the event, of course, jumping nearly 5% the day it officially flipped the switch to “on,” and then continued to rally. Indeed, Tesla stock has rallied 27% since early November, mostly in anticipation of the milestone event.
![Don't Sweat Analysts' Unenthused Response to Tesla Motors Inc (TSLA) Battery Factory](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
And yet, while the market and most retail investors were clearly impressed, more than a handful of analysts weren’t. Their concerns?
A lack of fiscal details about how the battery plant will impact the company’s books, for one. Another worry was about the sheer cost of the facility itself. Still another was whether the Model 3 may not be profitable when it finally goes into production.
With all due respect to those professionals, you want to start worrying about these things now? Now?!?
Yes. No. Maybe.
Just for the record, yes, I’m the same guy who’s been more critical than constructive on Tesla Motors over the years (like here, here and here).
But, my pessimism was never to suggest that Tesla’s take on electric vehicles wasn’t game-changing. The company has mainstreamed EVs. Its cars are engineering marvels. My concerns were simply rooted in the notion that most investors had unrealistic expectations; the masses couldn’t distinguish between Tesla Motors being a trade or an investment.
In retrospect, it’s not clear if the analyst community was able to distinguish between the two either.
Take the comments from Goldman Sachs analyst David Tamberrino as an example. He said, following Tuesday’s event at the facility:
“Overall we found the tour helpful in illustrating the layout and process for manufacturing lithium ion battery cells and packs for its automotive and energy products. However, there was a lack of quantitative updates for 2017 and the ramp expectations.”
Fair enough. Just bear in mind, however, that Goldman upgraded Tesla stock to a “buy” in May of last year — when the battery factory was well underway — with analyst Patrick Archambault commenting “We do not believe Tesla shares are fully capturing the company’s disruptive potential.”
So … is Tesla any less disruptive now that it’s making its own batteries en masse? The stock isn’t any higher now than it was then, but Goldman’s current rating on TSLA is “neutral.”
Granted, Goldman was just days away from underwriting another secondary offering of TSLA stock in May but the company didn’t know any less about the math of the gigafactory than it knows now. The only real difference between then and now is the stock’s price.
Morgan Stanley analyst Adam Jonas was also worried about Tesla’s lack of fiscal details now that the factory is in production, just as much as he’s worried that another round of fundraising is in the cards. Again, however, that’s nothing new for Tesla Motors, and it wasn’t a problem for Jonas back in 2014 when he doubled Morgan Stanley’s price target on TSLA stock, to $320 per share.
He noted at the time:
“If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again … Tesla says it will team up with partners to build the world’s largest Li-ion battery pack facility in the US. We reflect the potential for lower battery costs through higher sales volume nearly doubling Tesla’s share of the global car market to 90bps by 2028, driving our target increase.”
Tesla is clearly going to have that “world’s largest Li-ion battery pack facility” Jonas was stoked about three years ago. And, there’s at least a little more clarity now than there was then. Yet, Morgan Stanley’s current rating on Tesla stock is a modest “equal weight” despite clear progress being made since the 2014 call that said such progress would be compelling.
The stock never even threatened to reach $320.
And that’s when it hits you … some (though not all) analysts are just taking their best guess on TSLA, being led by the rhetoric rather than leading the rhetoric.
To be fair, that’s what analyst do. And it’s not easy. Opinions should be updated as new information surfaces.
On the other hand, the ebb and flow between quantitative and qualitative analysis from some analysts has made it tough for investors to digest those professional insights. The things that didn’t matter before — like profits or perpetual fund-raising — can’t be too big of a deal for the stock now.
In other words, don’t sweat the naysayers’ opinions too much.
Bottom Line for TSLA Stock
None of this is to suggest TSLA is inevitably going to skyrocket higher, nor is it to imply Tesla stock is doomed; the actual outcome is apt to be somewhere in between the two extreme opinions. It’s simply to point out that of all the reasons you may want to worry about owning Tesla shares, the lackluster response from analysts regarding the gigafactory is the least of them. Those guys are largely expected to say something in response to milestone events, and many of the pessimistic comments were off-the-cuff sound bites not meant to be taken as a complete analysis.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.