Tesla Motors Inc CEO – Elon Musk – is planning to acquire SolarCity and release the less expensive Model 3 sedan. But not everyone is excited about Tesla’s prospects. In a note on Thursday, a Cowen & Co. analyst – Jeffrey Osborne – believe Tesla’s stock could decline 20% in the next 12 months as the automaker juggles with work on its Gigafactory in Nevada, acquisition of SolarCity, and the Model 3.
Musk’s ambitions could prove costly
Last month, Tesla Motors Inc announced plans to buy SolarCity for $2.6bn. The Model 3 sedan, which is set to be released next year, received about 400,000 pre-orders. And, the Gigafactory in Nevada is facing higher operating costs than what was expected. For the automaker, the biggest issue is the lack of cash. On Wednesday, the electric carmaker said that it would borrow around $300 million from Deutsche Bank to assist in financing the vehicle leasing program.
Osborne warns that the “integration of SolarCity likely will take some time and soak up badly needed cash,” and the stock’s “underperform” investment rating, suggests it will drop at least 10% in the next year. The electric carmaker has a material amount of execution risk over the next 12 to 18 months, but is well positioned for the long-term, believe Osborne.
“We see Tesla as a great company led by a true visionary,” notes Osborne. “Simply, we see a lot more that can go wrong than can go right as the company transitions into Mr. Musk’s greater vision.”
Tesla stock to drop further?
Osbourne discussed his report on “Halftime Report.” The desk is also not bullish on the automaker, just like Cowen, with competition being the primary concern for Steve Weiss, notes CNBC. On the “Halftime Report,” he said there is much more competition coming out in the market, and he would not just own this stock.
Cowen initiated a coverage on Tesla Motors Inc with an underperform rating. This bearish stance comes from the concerns over execution, and the belief that the EV firm will need to raise cash in 2017. The EV firm burned $611m cash in the first six months of 2016, and needs to repay $422m to the bondholders in the third-quarter. Last week, Musk urged the employees to cut cost and boost deliveries to be cash-flow positive. This year, the shares of the electric carmaker are down by 18%, and the $160 price target by Cowen, means another 20% drop in the future.
On Thursday, Tesla shares closed down 2.16% at $197.36. Year to date, the stock is down over 17% while in the last one-year, it is down over 18%. The stock has a 52-week high of $271.57 and a 52-week low of $141.05.