Tesla Has A Demand Problem, According To These Analysts

The rough start to 2019 for Tesla Inc TSLA and its investors continued Tuesday, with the stock once again dropping below $300. Last week, the automaker announced it will cut 7 percent of its workforce as it attempts to ramp up Model 3 production ahead of a major debt deadline in March.

Wall Street is as polarized as ever about Tesla stock, with several analysts weighing in on how investors should handle the most recent news.

Buying Opportunity?

Tigress Financial analyst Ivan Feinseth said Tesla’s cost-cutting efforts are nothing for investors to get worked up about. The primary concern for the market is that Tesla’s new guidance for Q4 profit that will be lower than its Q3 profit is an indication that the 50-percent reduction in electric vehicle tax credits has pulled forward much of the near-term demand for Tesla vehicles, he said. 

“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,” Feinseth wrote in his daily newsletter.

Demand Is Key

Other analysts are not so optimistic that the sell-off is a buying opportunity.

Goldman Sachs analyst David Tamberrino said Tesla’s real issue is not layoffs, but lack of sustainable demand.

“In that vein, we see the recent actions and company commentary confirming our views that there is likely a more limited amount of demand for the higher price point Model 3 vehicles currently being offered — and the pent-up demand for the product may be cleared through (at least in the U.S.),” Tamberrino said in a note.

Tesla needs to drop the price of the Model 3 closer to its base $35,000 target price to maintain demand, but it’s unclear what level of margins the company can generate at that price point, the analyst said. 

Needham analyst Rajvindra Gill also has doubts about Tesla’s ability to penetrate the mass market of auto buyers.

Tesla investors can expect another $2,000 to $3,000 per vehicle of additional price cuts this year and should be prepared for a drop in demand for the company’s high-end vehicles, the analyst said. 

“Given our view that Tesla has essentially exhausted its high-end Model 3 backlog, there is a strong possibility that the company may experience difficulty getting a sufficient number of new orders in the U.S along with ramping internationally in order to remain profitable." 

Ratings And Price Targets

Tigress Financial has a Neutral rating.

• Goldman Sachs has a Sell rating and $225 target.
• Needham has an Underperform rating.
• Tesla was down 0.9 percent at $299.53 at the time of publication Tuesday. The stock is down 15 percent overall in the past year.

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Photo courtesy of Tesla.