Gordon Johnson: Tesla Has 'Bleak' Future, Will Drop To $84

Tesla Inc TSLA is optimistic that it can ramp car production with the capital it has now, but not everyone on the Street is convinced.

The Rating

Vertical Research Group analyst Gordon Johnson initiated coverage of Tesla with a Sell rating and 2019 price target of $84.

The Thesis

That’s not an error: Johnson anticipates 71-percent downside to the stock manifesting throughout the next 21 months. (See the analyst's track record here.)

The ramping of Tesla’s Model Y, Semi, Roadster and autonomous products will tally “sizeable” operating expenses and require $4-5 billion in debt or equity capital, Johnson said in a Tuesday note. In this second quarter alone, Johnson predicts Tesla will tap the capital markets for $2-3 billion.

“Further, based on our checks, with scale production at least three years out, we don’t see cash contribution before ‘22." 

By that point, about 101 battery-electric vehicles with ranges of more than 200 miles will have entered the market, according to Vertical's estimates. A competitive field compounded by luxury car saturation is seen to hurt Tesla, whose future Johnson said will be driven by car sales.

The company’s energy storage segment notched just $96 million and $115 million in 2016 and 2017 revenues, respectively, despite posting $1 billion in product reservations in 2015. At the same time, its SolarCity business is “a niche solution with very little appreciable revenue growth potential," Johnson said. 

The resulting reliance on vehicles makes for a “bleak” future, Johnson said.

Price Action

At the time of publication, shares were trading down marginally at $302.88. 

Related Links:

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Photo courtesy of Tesla.