Analysts Tackle Tesla Price Cut, Demand Concerns

Tesla, Inc. TSLA was off to a horrible start to 2019 on Wednesday after the company reported a fourth-quarter deliveries miss that sent the stock tumbling.

Tesla shares were down again Thursday, and several additional Wall Street analysts have weighed in on what Tesla’s weak Q4 number and its $2,000 price cut mean for the company and its investors.

Morgan Stanley: Price Cut Worse Than Deliveries Miss

Tesla’s Q4 miss was especially disappointing given that year-end deliveries were a top priority for Tesla, Morgan Stanley analyst Adam Jonas said in a note. 

“The announced price cut is probably a bigger negative than the delivery miss,” the analyst said. The $2,000 drop represents about a 4-percent discount on the average Model 3 price.

Goldman Focuses On Demand 

Tesla now has some major demand questions to answer now that the electric vehicle tax credits have been cut in half, Goldman Sachs analyst David Tamberrino said in a note. 

The automaker did not comment on product demand in its release, and a look at production and vehicles in transit implies that Model 3 inventories have increased to 7,000 vehicles vs. 2,000 in the prior quarter, the analyst said. 

This potentially points to "more limited sustainable demand at the current price point," he said. 

The weekly Model 3 production rate of just 4,700 in Q4 was also a major disappointment, Tamberrino said, down from 5,300 at the end of Q3 and well below his estimate of 5,200.

Tigress Eyes Tax Cut 

The market is concerned about the impact the tax credit cut will have on demand, said Tigress Financial's Ivan Feinseth. 

“Even though I remain neutral on the stock due to the valuation and the volatility, the stock has traded higher from the $260-$280 range pretty consistently and I would be a buyer on pullbacks to that level for investors willing to withstand the high valuation and extreme volatility in the stock,” he said in a note. 

Baird Sees Additional Sales Levers

Demand concerns are overblown, said Baird's Ben Kallo. 

“We think the company has several levers to drive additional Model 3 sales, including shipping to international markets (expected in February), and introduction of leasing options/lower cost variants,” the analyst said.

The Q4 delivery numbers were good enough to support a strong earnings report from Tesla later this month, Kallo said.  

While prices declined sequentially in the quarter, rising production rates will continue to boost margins in the longer-term, in the analyst's view. 

Ratings And Price Targets

• Morgan Stanley has an Equal Weight rating and $291 target.
• Goldman Sachs has a Sell rating and $225 target.
• Baird has an Outperform rating and $465 target.

Related Links:

Analysts React To Tesla's Delivery Miss, Tax Credits

Goldman Sachs Still Bearish On Tesla Ahead Of Tax Credit Cut

Photo courtesy of Tesla.