Tesla Motors Inc shares were down strongly on Tuesday morning after a downgrade rocked the market’s confidence in Elon Musk’s firm. UBS reigned in its already bearish view on Tesla Motors in a report issued early on Tuesday morning. The analysts said that Tesla would not be able to spur demand in the years ahead.
On Monday shares in the EV maker rose by close to 3 percent, bringing them to their highest level since September of 2014. At time of writing shares are down by 3.5 percent in Tuesday’s pre-market. Stock was selling for $272.38, but volume was low as most traders have yet to factor the report in.
Tesla gets a downgrade
UBS analyst Colin Langan lowered its price target on shares in Tesla from $220 to $210. Tesla is now a Sell in his view. He said that the firm would begin to accrue inventory in the next 10 years as demand for its cars runs out. Elon Musk says he will be able to sell 500,000 by the end of that year.
Langan says that the current stock price prices in sales of 1.5m cars per year in 2025, and a thriving power storage business on the side. Neither of those are likely to happen, says Langan, and Tesla’s storage output will be bigger than the market in 2020 according to his numbers.
Most of Wall Street is on Mr. Musk’s side and most research houses are supporting a stock price of close to current levels, but Mr. Langan is outright pessimistic on the future of Tesla Motors .
Deutsche Bank and Pacific Crest both downgraded shares in Tesla Motors last week, saying that the firm’s value was “full” at around $280. The UBS downgrade has a very different character. It is not arguing that Tesla has grown into its current share price, it’s arguing that it will soon shrink out of it.
Mr. Langan is joined by Bank of America Merrill Lynch in being fully opposed to Tesla’s current business model. BoA has a price target of $180 on the firm’s shares, the lowest number on Wall Street. Before a recent boost, and after BoA changed the analyst in charge of the Tesla account, that price target stood at $60.
Tesla Motors story challenged
Tesla Motors moves based on news and sentiment rather than hard numbers. When someone with some kind of authority, like a Wall Street analyst from a major bank, questions that story the stock often faces weakness.
After the Brad Erikson at Pacific Crest downgraded the stock because he didn’t think it was worth more than $280, it took affirmation from another Wall Street voice, Baird’s Ben Kallo, and intervention from Elon Musk in order to get the stock growing again.
After today’s fall, assuming the drop in value lasts past 9:30 AM EDT today, it may take renewed effort in order to send the price of Tesla Motors stock up with. Last week stock rose strongly ahead of Mr. Musk’s announcement of Ludicrous Mode among other Model S improvements.
Elon Musk still has plenty of news to deliver, and some of it is likely coming soon. As the Model X is on time, the online design studio for the SUV EV should open up soon.
A reveal of Tesla’s self-driving car should also be in the works, but the firm may be having trouble getting version 7 of its software ready for public release.
Mr. Langan’s ideas about the future of the firm have hurt shares in the short run, but a forecast like his can only have a small effect on the market. This morning’s mood, cautious after the strong rise of the last few days, is to blame more than his report on the firm.