BofA Remains 'Skeptical' On Tesla Model 3 Production After Investor Meetings, Expects Capital Raise

Even a day with Tesla Inc TSLA’s senior director of investor relations couldn’t assuage one of the Street’s most bearish analysts.

The Rating

Bank of America Merrill Lynch analyst John Murphy maintained an Underperform rating on Tesla with a $180 price target in a Wednesday note. 

The Thesis

Murphy regards Tesla’s construction of a Shanghai factory “prudent” in helping evade tariffs and penetrate a significant global market. What’s more, he concedes that Tesla’s benefiting from a vacuum in the electric vehicle market, even as competition rises on all sides. (See the analyst's track record here.) 

But the BofA analyst remains unconvinced that Tesla will sustain and continue to raise production rates.

“Although TSLA is confident in the sustainability of its production rate, based on its past challenges in ramping up production, we remain somewhat skeptical and believe it will take some time before the Model 3 production reaches material scale." 

Despite Tesla’s claims to the contrary, Murphy expects the slow Model 3 ramp and accompanying cash burn to necessitate a near-term capital raise.

Price Action

Tesla shares were down 1.09 percent at $318.96 at the close Wednesday. 

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Photo courtesy of Tesla.