Tesla (TSLA) Cut to Underweight at JPMorgan Following Soft Q4; Analyst Highlights Execution Risk
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(Updated - February 12, 2015 10:44 AM EST)
JPMorgan downgraded Tesla Motors (NASDAQ: TSLA) from Neutral to Underweight with a price target of $175.00 (from $180.00). Yesterday Tesla reported disappointing Q4 results and guidance. Analyst Ryan Brinkman pointed to softer execution, stronger competition, and lower oil prices. Brinkman also cast doubt on Tesla's ability to meet long-term expectations.
"Much of the 4Q miss was blamed on the timing of deliveries (push out from 4Q to 1Q, owing to customers being on vacation, severe winter weather, and shipping problems at year-end), although this was itself driven by continued production challenges intra-quarter which had caused assembly to be back-end weighted in the first place," said Brinkman. "To us, 3Q & 4Q taken together serve to highlight the execution risk associated with scaling production ─ a concern we have struggled with for some time in the context of the firm’s clearly demanding valuation."
"Ability to profitably scale production is of course central to the story: TSLA guides to 55,000 deliveries in 2015 vs. 32,000 in 2014 but, more importantly, 500,000 in 2020 and “millions” in 2025. Even presupposing the demand for these vehicles will be there (we forecast substantially less – 282K in 2020), there is also the matter of being able to produce these vehicles at the desired margin rate, for which we think there is some doubt," continued the analyst.
Brinkman added, "But our downgrade is about more than execution risk; we note: (1) The profound drop in fuel prices harms the competitiveness relative to internal combustion engine vehicles of TSLA’s planned Model 3 mass-market car, the potential for which we believe accounts for the majority of today’s equity value; and (2) Competition is mounting – automakers at the recent Detroit Auto Show debuted a number of electrified vehicles, some of which appear directly aimed at the Tesla Model S (e.g., Mercedes C-Class Plug-in Hybrid), the X (e.g., Audi Q7 e-Tron Plug-in Diesel Hybrid), and the 3 (e.g., Chevrolet Bolt)."
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Shares of Tesla Motors closed at $212.80 yesterday.