Goldman Sachs Downgrades Tesla To Sell, Sees 28% Downside

Tesla Inc TSLA is currently ahead of its OEM peers in terms of “vehicle technology adoption, electric vehicle architecture, and (potentially) battery scale,” Goldman Sachs analyst David Tamberrino said in a report. He added, however, the company’s shares could come under pressure due to a delay in the Model 3 launch and high FCF [free cash flows] burn rate.

Tamberrino downgraded the rating on Tesla from Neutral to Sell, while reducing the six-month price target from $190 to $185. He stated the revised price target represented 28 percent downside, versus 8 percent downside for peers.

Near-Term Concerns

Some suppliers had expressed concern that the final designs of Model 3 had not been locked down, Tamberrino mentioned. A delayed launch could severely impact volume and the FCF burn rate would necessitate a capital raise before Q4 2017.

Related Link: Tesla Beats Q4 Sales Estimates, Global Orders Up 49%

“We expect to see pressure on shares as we progress through the year, as cash burn intensifies and the ramp of Model 3 volumes proves to be slower and flatter than assumed in guidance/consensus,” the analyst commented.

Referring to the acquisition of SolarCity Corp SCTY, Tamberrino commented that the business model was unproven and was undergoing a transition, and that Tesla should have been “singularly focused on becoming a mass automobile manufacturer.”

Tesla's stock was trading down by more than 2.5 percent at $250.25 in Monday's pre-market session.