Goldman Sachs Still Bearish On Tesla Ahead Of Tax Credit Cut

Tesla, Inc. TSLA has had a love-hate relationship with Wall Street in recent years. Since the company’s impressive third-quarter earnings report, commentary has been mostly bullish, but one analyst reiterated his bearish outlook for Tesla.

The Analyst

Goldman Sachs analyst David Tamberrino reiterated his Sell rating and $225 price target for Tesla, implying about 35 percent downside from recent levels.

The Thesis

The analyst said improvements in Model 3 production, pent-up demand and tax credits have boosted Tesla’s numbers, mix and its share price. Starting on Jan. 1, however, the $7,500 tax credit for electric vehicles will be reduced by 50 percent.

“As a result, we believe there is a pull-ahead of deliveries and option mix occurring in the US in 2H18 that will likely create a lull in demand starting in 1Q19 that may not be fully made up by initial deliveries across Europe,” Tamberrino wrote in a note.

He also said the majority of the long-term demand for Model 3s will come from the low end of the vehicle’s pricing range, creating a mix shift that will weigh on Tesla’s margins.

Goldman is projecting full-year gross margin of 18.9 percent in 2018, 18.6 percent in 2019 and 18.9 percent in 2020.

Looking ahead to fourth-quarter numbers, Tamberrino said Telsa will likely announce Q4 deliveries that are up compared to a year ago but down slightly compared to Q3. Goldman is calling for 14,000 Model S deliveries, 13,000 Model X deliveries and 63,000 Model 3 deliveries in the quarter. Goldman is also estimating a full-quarter Model 3 production rate of 5,200 vehicles per week.