Barclays: Tesla Sell-Off Could Continue Into Earnings, But Watch For A 'Bear Trap' In Q2 Report

Tesla Inc TSLA stock was hammered this week after the company once again fell short of Wall Street expectations with its second-quarter delivery numbers. One Wall Street analyst said Friday that there’s still more downside risk for Tesla in the near term.

The Analyst

Barclays analyst Brian Johnson reiterated an Underweight rating on Tesla with a $210 price target.

The Thesis

Investors should give Tesla credit for finally hitting its Model 3 production goal of 5,000 vehicles per week in the final week of June, Johnson said in a note. (See the analyst's track record here.)

Yet Tesla was six months behind schedule on the 5,000-vehicle mark, and Johnson said it’s an unsustainable level in the third and fourth quarters.

Barclays forecast for Model 3 production to ramp from 29,000 in Q2 to 43,000 in Q3 and 52,000 in Q4. While Johnson said Tesla is clearly making progress in beefing up Model 3 production, he said the company may be paying a high price to do so.

“With productivity likely to remain a challenge for Tesla even as it ramps higher, we suspect there may be some headwinds to gross margin — potentially forcing Tesla to drive mix as richly as possible to meet its 20-percent Model 3 gross margin target at the end of 2018,” the analyst said. 

Tesla will likely be forced to raise more capital, even though the company has repeatedly said it will not be doing so in 2018, in Johnson's view. 

As for Tesla stock, the analyst said shares will likely continue to drift lower into the company’s Q2 earnings report, but he urged short sellers to be aware of the possibility of a “bear trap” announcement on the earnings call, such as a new deal in China or news on the Model Y.

Price Action

Tesla stock was down 1.46 percent at the time of publication Friday and is now down more than 10 percent in the last five days. 

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Photo courtesy of Tesla.