As Tesla’s (NASDAQ:TSLA) stock continues to slide (down 20% YTD), is the end in sight? It doesn’t appear so.
Investors received bad news earlier this month when the struggling electric automaker reported disappointing first-quarter production and delivery numbers, including a 45% q/q decrease in total production and 31% q/q decline in deliveries. Meanwhile, competition continues to mount, as luxury automakers Mercedes, BMW and Audi are all competing for a piece of Tesla’s market, as well as VW which is expected to be a top competitor against Tesla in batteries. On batteries, Panasonic recently suspended plans to grow Tesla’s Gigafactory 1, reportedly citing a “demand” issue, and contributing to bearish rhetoric.
At least one Wall Street analyst has had enough. Evercore’s Arndt Ellinghorst downgraded Tesla’s stock from In-Line (i.e. ‘hold’) to Underperform (i.e. ‘sell’), while slashing his price target to $240, from $330. (To watch Ellinghorst’s track record, click here)
Ellinghorst says he has a “more cautious view on demand across all Models (M3 global/SR+ launch), but in particular (is concerned about) the recent severe decline in demand for Model S/X.” The Model S and X are both profit drivers for Tesla, as the higher-priced luxury vehicles come with significantly higher margins than the Model 3.
A concern for Ellinghorst also surrounds Tesla’s finances. The analyst believes the company’s “repeated ‘cost-cutting measures’ designed to conserve cash when an equity raise would alleviate liquidity concerns,” as “other OEM peers have materially better cash balances despite lower growth opportunities.” While liquidity was an issue for many investors last year, this has fallen off a bit, as demand and production has return to the forefront. Ellinghorst says the company needs “a proper capital raise…[to sure] up the balance sheet as Tesla will end this year at <$2B in available cash (ex. customer deposits).”
Even though the analyst isn’t optimistic on Tesla in the short, he remains “encouraged by Tesla’s vision and future growth prospects (brand value, global Model 3 and Y TAM, Semi, etc.),” but still thinks “there is increased uncertainty around near-term demand vs previous bullish forecasts and growth cannot stall for a growth company.”
Regardless of his downgrade, Ellinghorst still believes in CEO Musk, saying, “Musk has earned the right to step down when he is good and ready,” and should not entertain calls to step down. Nevertheless, and even though the analyst is “certain the market is going to get a lot of promises at the investor day [Monday night]…we’d like to see more proof before assigning a significant value.”
All in all, street-wide caution circles the electric car maker’s stock. TipRanks analysis of 26 analyst recommendations shows a Hold consensus on TSLA, with nine analysts saying Buy, six suggesting Hold and 11 recommending Sell. The average price target among these analysts stands at $292.68, which represents about 11% increase from current levels. (See TSLA’s price targets and analyst ratings on TipRanks)
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