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Tesla may soon swing to a profit as Model 3 demand revs up

The automaker reaffirmed its guidance of profitability by the second half of 2018
Blue Model 3 parked
The company said it has received more than 60,000 requests to test drive the Model 3

Tesla Inc (NASDAQ:TSLA) announced mixed results in its second-quarter earnings after the bell Wednesday, but reiterated its guidance, expecting to be profitable and cash-flow positive by the second half of 2018.

Baird analysts think Tesla just might swing to a profit in the near future, citing the company’s positive commentary on Model 3 demand trends.

The company said it has received more than 60,000 requests to test drive the Model 3 and forecasts a higher drive-to-order conversion rate for the Model 3 than the Model S.

“TSLA announced the most common vehicle trade-ins for the Model 3 are the Toyota Prius, BMW 3 Series, Honda Accord, Honda Civic, and Nissan Leaf, which we think supports our belief the total addressable market for the Model 3 may be underestimated,” wrote analyst Ben Kallo.

READ: Tesla misses on 2Q earnings but says it's still on track to profitability by the second half of the year

Tesla is known for burning rubber and cash. The analyst was encouraged by the forecast on capital expenditures, lowered to US$2.5bn from US$3bn.

The electric vehicle manufacturer ended the quarter with US$2.2bn cash on hand.

The analyst reiterated its Outperform rating with a price target of US$411.

Some analysts have cast doubt on the company’s timeframe for profitability.

READ: Tesla asks suppliers to return cash to meet its profitability goal

In a June note, Morgan Stanley analysts didn’t see a positive GAAP net profit until 2021.

However, the analysts had also said that the company wouldn’t meet its 5,000 per week production goal until 2019 and the automaker has already met that goal.

In its second-quarter results, the company reported a net loss of US$3.06 per share, falling below Wall Street estimates of US$2.88 loss per share. Revenue came in at US$4bn, above analyst estimates of US$3.92bn.

Shares of Tesla were up nearly 10% to US$330.80 in Thursday pre-market trading.

 

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