Here's Why Deutsche Bank Issued A Tesla Alert

Courtesy of Benzinga.

In a report published Thursday, Deutsche Bank analyst Rod Lache took a closer looker at Tesla Motors Inc’s (NASDAQ: TSLA) near-term earnings outlook given the company’s Euro exposure that represents approximately 30 percent of the company’s global sales.

Due to the 9 percent decline in the euro since the beginning of the year, as well as a 3.5 percent price increase for the European market beginning in the second quarter, Lache now expects Tesla to earn $0.11 per share in 2015 and $1.75 per share in 2016. The analyst previously estimated the company to earn $0.52 and $2.00 per share in 2015 and 2016, respectively.

Lache noted that during Tesla’s fourth quarter conference call, management already cited foreign exchange as a significant adverse factor for 2015 and that a 7 percent decline in the euro would translate to a 200 basis point drag on gross margins. Given the fact that the euro has declined by more than 7 percent, the analyst expects a further 130 basis point headwind for gross margins.

However, Lache made no changes to his 2020 targets and maintained his earnings per share estimate at $20.

“At this point in time, we are not changing our longer term (i.e. 2020) earnings assumptions,” Lache wrote. “While the FX headwinds are significant, we see sufficient cushion in our 2020 cost structure and transaction price assumptions such that we believe that these will overwhelm adverse FX in the out years.”

Lache argued that Tesla’s declining battery costs to $150/kWh (versus approximately $225/kWh in 2014) could be “overwhelming” over the intermediate-longer term and could converge on $100/kWh by 2020. As such, this could offset a move in the Euro to parity against the U.S. Dollar.

Shares are Buy rated with a $245 price target.

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