Tesla’s tent factory could damage its high-tech reputation, analyst says (TSLA)

Tesla reached its goal of producing 5,000 Model 3 sedans in a week early Sunday morning.
The burst of production was thanks to its new assembly line in a tent next to its Fremont, California plant.
Evercore ISI warned clients Tuesday that the low-tech factory addition could damage Tesla's reputation as a high-tech company.
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The same tented assembly line that helped Tesla finally break its Model 3 production goal on Sunday could also be working against it, a Wall Street analyst warned Tuesday.

George Galliers, an analyst at Evercore ISI, said in a note to clients out Tuesday that Tesla’s extra assembly line — constructed in a tent next to its main Fremont, California factory and known by the company as GA4 — could be a long-term risk to Tesla's reputation.

"We understand that Tesla viewed GA4 as an economic way to accelerate production and delivery of Model 3, thereby resulting in incremental revenues and operating leverage on those parts of the production process that precede General Assembly," Galliers said.

"From a business perspective, we see sense in this. However, we also see merit in the counterargument that, if cash is not an immediate concern and GA3 is close to 5k a week today, the company should have waited rather than incur incremental capex to erect what appears to be a fairly primitive, and potentially temporary, facility. A facility which also has the potential to damage Tesla’s reputation as an innovative and advanced manufacturer, in the eyes of the consumer."

Evercore has a $287 price target for shares of Tesla, 14% below where shares are currently trading. The stock initially popped Monday following CEO Elon Musk's tweet suggesting the electric-car maker had reached its goal of producing 5,000 Model 3 sedans in a week. It closed down 2.3%, however, once investors digested the full deliveries report, which showed Tesla missed Wall Street's consensus for total vehicle deliveries.

Like many of his sell-side peers including Barclays, CFRA Research, and Edmunds, Evercore doubts Tesla's ability to maintain the 5,000 per week rate going forward.

"We don’t believe any investor sees 5k+ as a sustainable run-rate over the coming 3-4 weeks," Galliers writes.

"Instead, it is seen as a burst rate. Based off the limited photographs/material available, does not appear cutting edge, modern or, ultimately, efficient to our eyes. Indeed, it looks like the set-up we would expect from an early start-up in an emerging market or in a developed market during a time of conflict. This seems to go against the very grain of Tesla’s reputation as a technologically advanced company and the concept of 'the Machine that builds the Machine'."

Tesla has risen 4.5% since the beginning of 2018. Musk, meanwhile, has warned multiple times of an upcoming short-squeeze. Still, investors shorting the stock — or betting its price will go down — haven't backed off. Telsa remains the most shorted US equity, with $12.04 billion riding against it, up from $11.6 last month, according to data from financial-analytics firm S3 Partners.

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