Tesla (TSLA): Don’t Get Your Hopes Up Just Yet, Says Needham; Reiterates Underperform on the Stock

Over the past year, Tesla’s (TSLA) stock price has been a battleground between two camps: bulls and bears. Bulls point out how well TSLA stock has held up since October when all other tech heavyweights have plunged in a free fall. Bears are happy to point out that the high level of short-selling in the stock is a reflection of sentiment and fundamental worries.

From the bear camp, Needham analyst Rajvindra Gill reiterates an Underperform rating on Tesla stock, without providing a price target. (To watch Gill’s track record, click here)

The analyst is concerned Tesla has depleted its high-end backlog of Model 3 orders and as a result, the electric car giant could see a steep decline in Model 3 orders either in 1Q19/2Q19.

“We believe the company is baking on its ability to sell high price Model 3 variants internationally, specifically in Europe, which are expected to commence in February, in order to offset a possible steep decline in U.S. sales. Moreover, the company should have completed deliveries of their lower tier RWD Long Range vehicle, which they stopped producing in October. This information, combined with the fact that fewer than 25% of 4Q Model 3 deliveries were derived from existing reservation list holders, implies that Tesla has rapidly depleted its highend Model 3 backlog,” Gill noted.

“Given our view that Tesla has essentially exhausted its high-end Model 3 backlog, there is a strong possibility that the company may experience difficulty getting a sufficient number of high-end new orders in the U.S along with ramping internationally in order to remain profitable. Complicating matters is the expiration of the tax credit hampering end demand. We are concerned that the company may not successfully produce its Standard Battery version in time in order to compensate for a potential drop in demand for its high end vehicles. Our fears are exacerbated by Tesla’s history of production issues, especially for the Model 3,” the analyst added.

The Street Verdict

In the Wall Street game of bulls and bears, who wins out the verdict on the electric vehicle maker? The case is not closed here, with the battle torn between the two. Based on 24 analysts polled by TipRanks in the last 3 months, 8 rate a Buy on Tesla stock, 8 maintain a Hold, while 8 issue a Sell. With a return potential of nearly 9%, the stock’s consensus target price stands at $322.33. (See TSLA’s price targets and analyst ratings on TipRanks)


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