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Tesla (TSLA): J.P. Morgan Warns of Rising Rivalry

J.P.


J.P. Morgan analyst Ryan Brinkman had already cut back on his first quarter expectations for Tesla (NASDAQ:TSLA) on back of the latest “disappointment” in the company’s volatile narrative: underwhelming Model 3 delivery numbers.  Though the company so far has confronted minimal rivalry in the luxury electric vehicle playing field, Brinkman warns competition is coming. Any “slack” shoppers have cut for TSLA amid standout service and build quality may not be as generous in the future as the competition thickens.

Therefore, ahead of the print, the analyst maintains an Underweight rating on TSLA stock with a $185 price target, which implies a 37% downside from current levels. (To watch Brinkman’s track record, click here)

With a massive misstep when it came to 29,980 Model 3 vehicle deliveries in the first quarter a far cry from the Street’s forecast of 36,523 and the analyst’s bearish prediction of 43,600, Brinkman stands by his dialed down expectations ahead of the print due May 2nd. Meanwhile, first quarter deliveries do not even make up a 1% sequential boost against the fourth quarter’s number of 29,967, which the analyst believes stems partially from a significant 13% year-over-year dip in deliveries of better profit makers Model S and Model X vehicles.

Next, Brinkman underscores apprehensions of free cash flow, which have odds to come up as a substantially bigger outflow in the first quarter of -$841 million than in the fourth quarter of -$277 million. After all, cash flow had seen recovery thanks to an upturn in deposits on new reservations as well as from working capital bringing in cash on an advantage from a sell-down in completed goods inventory in the fourth quarter. These trends do not stand to “prove sustainable” when it comes to the first quarter, warns the analyst.

“We highlighted competitive risk from German luxury automakers following our recent Europe Autos Trip. Beyond the risks to 1Q, we have recently highlighted concerns regarding increased competition, including from automakers looking to use the sale of battery electric vehicles to subsidize their more lucrative internal combustion engine portfolio vehicles from a legal, regulatory, and compliance perspective, rather than trying to generate profit on the sale of battery electric vehicles in and of themselves, suggesting these automakers may be incentivized to price battery electric vehicles at price points that could be below cost, such that they may sell in sufficient enough quantity to accomplish this aim (in turn, the more profitable internal combustion portfolio vehicles of these automakers can be seen as subsidizing the battery electric vehicles from a financial perspective). Neither of these trends is good for Tesla, in our view,” Brinkman surmises.

TipRanks reveals TSLA as a stock that has not drawn a vote of confidence among Wall Street opinion. Out of 20 analysts polled in the last 3 months, 5 are bullish on TSLA stock, 9 remain sidelined, while 6 are bearish on the stock. Worthy of note, the 12-month average price target stands at $294.07, which aligns evenly with where the stock is currently trading.