Is Tesla (NASDAQ:TSLA) stock about to fall over 40%? That’s the disturbing implication of a research note from Merrill Lynch analyst John Murphy. Murphy presses the negative case on TSLA, reiterating an Underperform rating on the stock, with a price target of $180. (To watch Murphy’s track record, click here)
Yesterday, Tesla announced that it had successfully ramped Model 3 production to 5K/week exiting Q2, which should be considered a key milestone toward its path to profits. However, Murphy points out that it’s still unclear whether the electric car giant will be able to maintain that production rate for a longer period of time.
Murphy noted, “We continue to believe that, given TSLA’s past challenges in ramping up production, it will take some time before the Model 3 production reaches material scale, and thus, costs related to the ramp may outweigh the potential benefits of operating leverage on higher volumes for some time.”
“TSLA has been a highly debated stock for some time, but especially since its highly publicized 1Q:18 earnings call due to management’s dismissiveness regarding the ongoing production challenges of the Model 3, as well as the likelihood that the company may need to raise capital again. We believe this, on top of deteriorating visibility over the timing of generating positive cash flow, could wear on investor patience, and impair TSLA’s key advantage of access to low-cost capital necessary to fund the longer-term vision/plan. Thus, we maintain our Underperform rating,” the analyst concluded.
Overall, Wall Street is split between the bulls, the bears, and fence sitters on the electric car empire, with TipRanks analytics exhibiting TSLA as a Hold. Out of 21 analysts polled in the last 3 months, 7 are bullish on Tesla stock, 8 remain sidelined, while 6 are bearish on the stock. These analysts have an average price target on the stock of $297.36, which implies nearly 7% downside from current levels.