Tesla’s stock could drop another 27% after Wednesday’s selloff: JPMorgan

  • Tesla’s stock could fall another 27% after Wednesday’s massive selloff, JPMorgan says.
  • More important than the disappointing delivery numbers, was the hint at softening demand, analyst Ryan Brinkman told clients.
  • Tesla is expected to report fourth-quarter financials this month.

Tesla on Wednesday released fourth-quarter delivery numbers that disappointed investors and hinted at softening demand for its electric vehicles.

Those figures could be dangerous for the company’s targeted 25% margins on the Model 3 — the car that’s supposed to keep Tesla both alive and profitable — according to JPMorgan.

“The perceived need on Tesla’s part to lower prices suggests to us potentially softer underlying demand,” analyst Ryan Brinkman said in a note to clients Thursday, “and carries negative implications for the ability to earn the firm’s targeted strong 25% gross margin on the already lower priced Model 3, which has been a key source of our conservatism.”

The bank still expects Tesla to sustain its profit that it reported last quarter through the full year of 2019, with earnings per share coming in at around $3.35 (non-adjusted), down from $3.95 previously. For the upcoming fourth-quarter earnings report this month, which Tesla has yet to officially schedule, Brinkman has trimmed his EPS estimates to $0.77 from $0.93.

Tesla’s stock price, on the other hand, could be a different story. Those earnings estimate shifts have JPMorgan revising its already bearish price target even lower, to $220, or about 27% below where shares were trading Thursday.

It all comes down to continued demand, says Brinkman.

“Investor expectations may have been higher after 3Q18’s atypical deliveries beat,” he said, while noting that expectations have been missed in five of the past six quarters. “Of more import for our estimates, and we think for Tesla valuation, is that the firm announced in conjunction with the release of 4Q18 deliveries that it would lower Model S, X, and 3 prices by $2,000.”

The significant shrinking of a tax credit, triggered by Tesla hitting the limit of 200,000 vehicles sold, will be partially offset by the price reduction, but puts the company at a “comparative disadvantage at this stage,” says Brinkman, “a consequence of their earlier success.”

Shares of Tesla have sank about 7.5% since the delivery numbers were announced ahead of the opening bell on Wednesday, and were continuing to sink Thursday alongside a broader tech selloff spurred by Apple late on Wednesday.

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