Analyst Sees 30% Downside for Tesla (TSLA) Stock Ahead of Q1 Earnings

Goldman Sachs' David Tamberrino continues to be skeptical as to whether TSLA can sustain its price and margins on the Model 3 near-term.


As Tesla (NASDAQ:TSLA) approaches tomorrow evening’s first quarter print release, one bear is chiming in pinpointing investor sentiment at large: caution. Goldman Sachs analyst David Tamberrino notes that the bull case hinges upon the second quarter production and delivery update as the sole significant data point lying ahead. Yet, bears argue on a “host” of prospective challenges waiting until then- from margin pressure to massive cash burn to dips in deposits to a rising need for more capital.

In anticipation of the electric car empire’s quarterly results, the analyst reiterates a Sell rating on TSLA stock with a 6-month price target of $195, which implies a close to 32% downside from current levels. (To watch Tamberrino’s track record, click here)

“We believe most investors are expecting the company’s results to miss relative to consensus expectations […] overall we do expect the company to miss Street expectations, though a potential reiteration of the target 5k production rate and 25% target gross margin for the Model 3 likely gives bullish investors enough to continue to wait,” explains Tamberrino.

One huge share driver continues to hinge upon the challenged Model 3 and its weekly production rate- a window to grasping the “go-forward” for CEO Elon Musk’s company as well as its prospective cash needs. “The company finished the quarter at approximately 2k/week with CEO Elon Musk taking over production. However, since then the company took down its line for a week and was looking to install incremental labor to help alleviate choke points and improve the rate. From the weekly cadence of VIN registrations, it does not appear that the company has seen a significant improvement from that rate just yet,” the analyst writes, adding: “We find bulls continue to underwrite the target of 5k/week exiting 2Q18 as a sustainable rate —and expect this to be a panacea for cash needs.”

While Tamberrino believes Tesla’s margins are poised for improvement as 2018 progresses, he continues to express wariness as to Tesla’s capacity to keep up price and margins on the Model 3 in the short-term. Keep in mind, the U.S. Federal Tax Credit is on the brink of a phaseout, the Model 3 is not expected to have a big refresh for at least the next two years, and market competition is starting to chase at Tesla’s heels, underscores the analyst. “Cash is king,” Tamberrino surmises, which puts cash burn in high focus for Tesla’s narrative- as the analyst projects a “much higher” free cash flow burn than the Street, considering his fears on margins, operating expenses, and capital expenses. Tamberrino calls for Tesla to close out the first quarter with $2.9 billion in cash.

TipRanks suggests apprehension reigns the Street on Tesla’s market opportunity. Out of 20 analysts polled in the last 3 months, 5 are bullish on TSLA stock, a majority of 9 remain sidelined, while 6 are bearish on the stock. Notably, the 12-month average price target stands at $294.07, aligning with where the stock is currently trading.

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