Gordon Johnson Lowers Tesla Price Target To $93, Says Sales Will Suffer Between 2019 And 2020

Street experts aren’t convinced Tesla Inc TSLA will post profits and positive free cash flow in the third and fourth quarters.

The stock’s most bearish analyst expects lay investors will soon reach the same conclusion.

The Rating

Vertical Group’s Gordon Johnson maintained a Sell rating on Tesla and lowered his price target from $99 to $93.

The Thesis

After comparing Tesla’s quarterly new orders and total unfilled reservations, “we surmise that either Model 3 cancellation rates have spiked from the initial euphoria period of 3/31/16-to-4/30/16, or new reservations have virtually disappeared,” Johnson wrote in a note.

He expects Tesla to exhaust all pre-orders in the first quarter of 2019 — around which time it will begin selling the cheaper Model 3 edition and slice its average selling price.

At the same time, Tesla’s 33-percent year-to-date market share concession in Europe indicates imminent competition in electric vehicles could stunt U.S sales across all models. These factors bode poorly for company fundamentals, according to Vertical.

Sales Will Struggle

“In short, we believe TSLA’s ability to show material revenue growth beyond 1Q19 will prove extremely difficult,” Johnson wrote. “In fact, until new products are introduced (i.e., likely 3 years from now, or 2021), we see TSLA’s ability to continue growing sales in the double-digit percentage range beyond 1Q19 as acutely compromised.”

Even assuming Tesla sells an aggressive $120,000 in ZEV credits in the third and fourth quarters, along with $120 million in other high-margin regulatory credit sales, the analyst anticipates earnings before interest and taxes of -$304 million and -$119 million, respectively.

Johnson expects 2018 upside to Tesla’s Powerwall and Powerpack sales in Puerto Rico, but considers the estimated $58 million opportunity inconsequential against Tesla’s cash burn.

Price Action

At time of publication, Tesla shares were trading up 1 percent at $348.34. A Form 4 filing late Wednesday showed that CEO Elon Musk bought 72,500 shares at an average price ranging from $342.44 to $347.44.

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