A few days ago Tesla Motors Inc (NASDAQ:TSLA)’s CEO, Elon Musk, declared in a post on the company’s blog that the 8 year infinite mile warranty has been extended to Model S’ Drive Unit. Ever since then the Street has been divided on whether this move is good or bad for Tesla Motors Inc (NASDAQ:TSLA). Musk had acknowledged that the extension of warranty will negatively impact the company’s earnings and analysts have taken note of that. Brad Erickson, Analyst at Pacific Crest, recently released a note in which he decreased his earnings forecast for Tesla Motors Inc (NASDAQ:TSLA), but continues to be bullish on the company. Barron’s published extracts from Erickson’s note in one of its posts recently.
In his note Erickson said that he estimates the incremental warranty reserve for each 85 Kwh Model S to be slightly above $300, which according to him will affect gross margins by 30 basis points in the future. Erickson estimated that the extension of warranty will impact Tesla Motors Inc (NASDAQ:TSLA)’s EPS by $0.10 in the third quarter and there will also be a $10 million one-time charge that the company will have to bear for vehicles sold in arrears. He expects the impact on EPS in fourth quarter to amount to $0.03. Erickson factored in this erosion in EPS and lowered his 2014 EPS guidance for Tesla Motors Inc (NASDAQ:TSLA) from $1.30 to $1.17.
Erickson not only lowered his EPS guidance for 2014, but also for 2015 and 2016. In 2015, he forecasts Tesla Motors Inc (NASDAQ:TSLA)’s EPS to be $3.08 on revenues of $6.14 billion, instead of the previously assumed EPS of $3.18. For 2016, he predicts Tesla Motors Inc (NASDAQ:TSLA)’s EPS to reach $7.80, down from the previous $7.99 on back of revenues of $11.4 billion. Even after lowering his guidance Erickson believes that Tesla Motors Inc (NASDAQ:TSLA)’s shares will continue to move upward and touch his price target of $316.
As of June 30, 2014, Daniel Benton‘s Andor Capital Management owns 1.25 million shares in Tesla Motors Inc (NASDAQ:TSLA).