What Goldman Sachs and Morgan Stanley see ahead for Tesla in 2019
Two major investment banks had research notes on Tesla Inc. on Tuesday, sticking to their guns on their views on the stock as one predicted a “lull” in demand in early 2019 and the other called for “substantially higher” quarterly cash flow.
Tesla TSLA, -1.12% shares have benefitted from increased Model 3 production and a combination of pent-up demand and the looming phase-out of federal tax credits, but that’s not expected to last, analysts at Goldman Sachs GS, +2.21% said in their note.
The Goldman analysts, led by David Tamberrino, kept their sell rating on the stock and a $225 price target, among the lowest on Wall Street and one that implies a 35% potential downside.
Read more: Tesla’s 2019 challenge? To remain profitable quarter after quarter
They forecast strength in U.S. deliveries for the fourth quarter, ahead of the 50% reduction in federal tax credits starting Jan. 1.
“As a result, we believe there is a pull-ahead of deliveries and option mix occurring in the U.S. in (the second half of 2018) that will likely create a lull in demand starting in (the first quarter of 2019) that may not be fully made up by initial deliveries across Europe,” the Goldman analysts said.
Moreover, as they believe the bulk of “sustainable demand” for the Model 3 likely is at the lower end of the vehicle’s price curve, “program margins will likely mix-down as time progresses,” they said.
“When combined with our view that incremental competition is coming for the company’s established products (i.e., the Model S and Model X), we continue to see downside to shares and reiterate our Sell rating,” they said.
Related: In sweeping interview, Elon Musk says Tesla will be cash-flow positive ‘all quarters going forward’
Analysts at Morgan Stanley MS, +1.11% led by Adam Jonas, kept their equivalent of a hold rating on Tesla stock with a price target of $291, or about 16% downside from Tuesday’s prices. Sell-side analysts on average have a $341 price target on Tesla and a hold rating.
“Extraordinary efforts” to deliver Model 3s before the end of the year could drive fourth-quarter cash flow “substantially higher,” the Morgan Stanley analysts said.
They forecast adjusted fourth-quarter free cash flow around $648 million compared with $738 million in the third quarter, but potentially as high as $1.3 billion.
The Morgan Stanley analysts also predicted a $2.5 billion capital raise for Tesla despite the company saying that currently it is not their intention.
“In our opinion, a potential capital raise could reduce many investors’ concerns about financial pressure during a critical time of market expansion and strategic partnership,” they said.
While overseas demand for the Model 3 could be “extremely high,” there’s lingering concerns whether Tesla would be able to achieve “sustainable access to foreign markets,” particularly in China and in the European Union, the analysts said.
Tesla surprised markets in October by reporting a GAAP third-quarter profit and is expected to report fourth-quarter production and delivery numbers in early January. Fourth-quarter earnings are likely to be released sometime in February.
Tesla shares have gained 12% this year, versus losses of 4% and 3.3% for the S&P 500 index SPX, +0.52% and the Dow Jones Industrial Average. DJIA, +0.89%
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