The recent rally in Tesla (NASDAQ:TSLA) stock appears to have been driven by rising confidence in the company’s ability to reach its target of building 5,000 Model 3 units per week by the end of this quarter. However, the electric car giant is likely to miss 2Q18 delivery expectations, predicts Goldman Sachs analyst David Tamberrino today.
As such, the analyst reiterates his Sell rating on TSLA shares, with a $43 price target, which implies a downside of 43% from current levels. (To watch Tamberrino’s track record, click here)
Tamberrino wrote, “Current data points suggest approx. 10,425 Model 3 vehicles were delivered in April and May (to US and Canada customers). As such, we increase our Model 3 delivery estimate to 22,000 (from 19,000 previously), although we remain below the consensus expectations of 28,000.”
The analyst continued, “We believe that the market was previously anticipating a further push-out of the 5,000/week production rate when shares were trading in the $280 range, and now believe that shares are pricing in a sustained 5,000/week production rate following the bullish tone from the company on the production rate during its June 5, 2018 shareholders meeting, and additional commentary from the CEO. We believe this is corroborated by investor conversations that have moved past the 5,000/week run rate production target and onto gross margin implications as well as the ability to convert on higher priced Model 3 variants. On the former, the company likely has some added fixed cost from the incremental module and general assembly lines—though likely de minimis compared to overall capex expectations for the quarter. Of course, incremental labor associated with the reduction in automation and incremental general assembly line likely help weigh on margins.”
How does Tamberrino’s bearish gamble weigh up against the word of the Street? Based on 19 analysts polled by TipRanks in the last 3 months, 7 rate a Buy on Tesla stock, 9 maintain a Hold, while 6 issue a Sell on the stock. The 12-month average price target stands at $302.82, marking a nearly 11% downside from where the stock is currently trading.