Goldman Has Mixed Feelings After Visiting Tesla (TSLA)

REUTERS/Brendan McDermid

Tesla is up over 6% today rising to as high as $104 per share at one point. The stock is up 204% year-to-date.

Some have argued that this drive up in prices is unwarranted.

Goldman Sachs' Patrick Archambault has a neutral rating on Tesla with a price target of $61.

Archambault recently visited Tesla's manufacturing plant in Fremont, California. Here are the key takeaways from the report:

Demand looks strong. In Europe, the order rate is about 200/week with "highest per-capita demand from Nordic countries." They expect Germany to become one of their biggest markets, and in Asia, they expect China to drive demand. In the longer-term they expect to sell 500,000 vehicles. The breakdown: "Gen 3 sedan (around 200K units), Gen 3 SUV (about 150K units), Model S/X (roughly 90K units) and the next Gen Roadster."On the production side the company reported a few improvements that should help support margins. 1. The number of temporary workers have decreased since the start of the year. 2. Less waste at supplier and production sites. 3. Full time employee work hours being lower to 40-50 hours per week, from 60-70 hours per week. 4. "Improvement in logistics costs."Revenue from GHG/CAFE Credits: It has been argued that Tesla's margins are driven by its zero emission vehicle (ZEV), greenhouse gases (GHG), and Corporate Average Fuel Economy (CAFE) credits. And that the many of these could disappear if the government changed its mind. "Tesla believes that revenues from these credits [GHG/CAFE] are far more reliable and sustainable than from the sale of ZEV credits," according to Archambault."The 25% gross margin target is more of a challenge, in our view." Tesla reported 17% gross margin in Q1. But some like Donn Vickrey at Gradient Analytics say the Q1 margin was closer to 5.7%, when excluding credits.

In recent weeks, Tesla has rallied on the back of an earnings beat, a secondary offering, a Consumer Reports review of 99/100.

But some argue that this is just a short squeeze, and there are many long-term questions about gross margins, credit sales, and warranty accruals that need to be addressed. 

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