Why Wall Street Is Wary Of Tesla’s Stock

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Anyone who follows Tesla knows that its stock has shot through the roof Wednesday putting the company into a prime position on Wall Street and making it a favorite pick among growth investors.

Analysts noted that Tesla Motors Inc. (TSLA) is one of the most desired and admired motor vehicles in the planet. Tesla’s stock is one of the most actively traded “momentum” stocks that tend to enhance and electrify the market. However, Wall Street is uneasy and wary of its stock.

Efrain Levy, analyst at S&P Capital IQ, describes Tesla’s achievement, “Tesla’s fresh story of innovative electric vehicles with industry-leading all-electric driving range and strong safety reviews is attractive. Also, its unique business model and technological leadership give it a margin advantage over peers.” However, on Wednesday, November 4, 2015, he downgraded his rating on the stock to a “sell” from a “hold”. He also cut his year price target on the stock, currently trading at $230 a share to $215 from $225. Levy reasoned, “We view positively recent vehicle development news, but we still see risk for these volatile shares and limited near-term catalyst, following what we view as a relief rally today.”

Goldman Sachs, analyst at Patrick Archambault, is also wary of Tesla’s stock. He closely follows Tesla Motors. He said that although he likes the company’s positive commentary about its Model S and Model X during Q3 result, there is still a great deal of uncertainty remaining.” He emphasized that now isn’t the time to buy shares and that investors need to be patient and should wait for a lower entry point. Archambault is maintaining his “neutral” rating on the stock but has lowered his price target to $230 a share from $234. He is expecting Tesla to report deliveries closer to the low end of its full year deliveries of 50,000 to 52,000 vehicles. Archambault noted that Tesla’s announcement on its Model X seemed much more confident than in past quarters.

Another concerned analyst is Colin Langan of UBS. He said that although the company’s Q4 delivery appearance appears aggressive, the margin guidance is disappointing. In the report UBS noted, “Margins are expected to improve as the Model X ramps, though production mix will be an underlying headwind as the next versions will be lower priced. “ UBS is maintaining its “sell” rating on Tesla’s stock which has a price target of $190 a share.

However, one analyst on Wall Street, Adam Jonas of Morgan Stanley, remains positive despite some unanswered questions on how the company can continue to pursue its ambitious growth strategy in automobiles and energy storage, and how Tesla will absorb necessary upfront cash expenses with its intensive spending to expand these business lines.  He rates the stock as “overweight” with a massive price target of $450 a share.

Tesla’s high flying, well-publicized ambition is irresistible. However, it needs to address questions raised on Wall Street as its way to approach new business opportunities in the automotive industry is not clearly understood by the investment community at this time as noted by Jonas.

In the meantime, investors might see one of Tesla’s self-driving cars cruising smartly on the road.


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