Tesla Motors Inc (NASDAQ:TSLA) prospects on the earnings front continue to look brighter, much to the excitement of the Street after posting an impressive quarter. Revenues were up to $1.1 billion against estimates of $1.04 billion as Colin Langan of UBS affirms there is room for the business to continue growing. However, speaking on CNBC, He questioned Tesla’s ability to get batteries costs down which he believes could end up putting more pressure on margins in the long term.
Tesla Motors Inc (NASDAQ:TSLA) gross margins continue to be hurt by the dollar remaining stronger against the other currencies especially in markets abroad where it is selling some of its cars. Near term, Langan expects Tesla to ramps up production volume, which could push the stock higher to the current trading levels.
There have been concerns about the increase in the amount of money lost per car manufactured, mostly attributed to currency fluctuation headwinds of which Langan believes it might not be right to judge the automaker, based on those assumptions.
“That could be very misleading; the opportunity for Tesla Motors Inc (NASDAQ:TSLA) is really the huge leverage in the business model. Part of the reason we are still neutral there are still opportunities as they leverage R&D, S G&A,” said Mr. Langan
There has been a lot of hype behind the recently unveiled battery business that Langan believes in not yet there in terms of traction and returns to justify Tesla being termed a battery company. The fact that a majority of Tesla’s earnings comes from the sale of electric cars justifies Tesla Motors Inc (NASDAQ:TSLA) being called an electric company according to Langan.
“Today it is a Car Company, and there is a nice option to grow this business but even when we look out I think our 2020 estimates, 10% is battery storage. Maybe that goes up as they talked about last night may be adding some capacity for batteries at the Gigafactory,” said Mr. Langan.
The impact of competition in the auto space has always posed the biggest concern for investors on Tesla Motors Inc (NASDAQ:TSLA) as a stock. Contrary to the Street sentiments CNBC’s Joe Kernen does not believe Tesla being valued at $29 billion is an expensive stock. When compared to other biotech companies that are valued at $50-$60 billion on the potential of a couple of drugs.
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