Why This Analyst Is Warming Up To Tesla's Stock

Given Tesla Motors Inc’s (NASDAQ: TSLA) potential positive catalysts, including the January 4 launch of Gigafactory, a potential Model 3 launch in the summer of 2017 and depressed sentiment on the name, Pacific Crest’s Brad Erickson is “warming to the name.”

Erickson maintained a Sector Weight rating on the company.

Greater Confidence Needed

The analyst mentioned that “Tesla still faces two likely upcoming quarters of sequential declines in Model S deliveries, which bears will likely latch onto, and we think Model X demand is still lagging expectations.”

Therefore, Erickson stated more confidence that these two factors did not indicate weakness in the underlying demand would be required before becoming more constructive on the stock.

“Bears continue to view demand and the Model 3 launch skeptically while bulls are focused on the bigger picture of TSLA selling the proverbial weapons for the electric car war. Our demand concerns remain, but given depressed sentiment, we are warming on TSLA,” the analyst explained.

The Positives

Following meetings with Tesla Motors’ VP of IR, Jeff Evanson, the analyst noted that the production of Model X continued to be “somewhat inconsistent” through Q4, while Model S orders have continued to outpace Model X.

Erickson also pointed out that “low-end Model S buyers keep springing for high-margin options,” while Model 3 appeared to be on track for launch in H2 2017.

In addition, Gigafactory's capacity “could wind up being multiples of the previously stated figure of 35 Gwh with no change to capex,” according to the report.