Analyst Sees Tesla Inc (TSLA) Stock Headed Below $100
Tesla Inc (Nasdaq: TSLA) investors have endured missed Model 3 production targets, a credit downgrade, reports of production quality issues and even a new set of Chinese automobile tariffs. This week, Tesla investors are dealing with bearish commentary from Wall Street as analysts grow increasingly skeptical of Tesla's valuation.
On Wednesday, Vertical Research Group analyst Gordon Johnson became the latest analyst to initiate coverage of Tesla, slapping a "sell" rating on the struggling stock. According to Johnson, the luxury electric vehicle market is becoming saturated, and Tesla is facing more competition by the year.
[See: The 10 Most Valuable Auto Companies in the World.]
Johnson says Tesla's future is all about vehicle sales given the poor economics of its solar business. Johnson says Tesla's Powerall/Powerpack divisions accounted for only about $115 million in revenue in 2017 and had a negative $15 million in gross margin in the third quarter. In addition, Johnson says Tesla's SolarCity building-integrated photovoltaics business is "a niche solution with very little appreciable [revenue] growth potential."
Turning to auto sales, Johnson says Tesla's auto deliveries growth slowed dramatically in 2017, mostly due to the arrival of the General Motors Co. ( GM) Chevy Bolt. Johnson says at least four competitors will be releasing similar models in 2018 and estimates that there will be no less than 101 battery-powered electric vehicle models with 200 miles of range on the market by 2022.
In the meantime, Johnson says ramping up production of Tesla's Model Y, Semi, Roadster and autonomous driving technology will require between $4 billion and $5 billion in additional capital, which he says "may prove difficult" for Tesla to come up with if it continues to report $2 billion in losses per year.
"Despite TSLA's claim it does not 'require' debt/equity in '18, our cash flow analysis suggest TSLA will tap the capital [markets] for $2 to $3 billion in [the second quarter], diluting shareholders,' Johnson says.
Johnson's bearish initiation comes just a day after Goldman Sachs analyst David Tamberrino said he expects Tesla to raise capital this year and questioned the sustainability of Tesla's recently-reported Model 3 production rate.
[See: 7 Auto Stocks to Drive Income.]
"After achieving an extrapolated 1,000 Model 3s per week ending [in the fourth quarter of 2017], we believe the sustainable production rate for 2Q18 is most likely below the 2,000-vehicle mark the company achieved in the final week of the quarter," Tamberrino says.
Goldman Sachs has a "sell" rating and $195 price target for TSLA. Vertical Research has a "sell" rating and $84 target for TSLA stock.
More From US News & World Report
