Barclays analysts lowered their price target on Tesla, citing various reasons such as softer volumes and margins and GM’s Chevy Bolt
Tesla Motors’ price target has been lowered by Barclays analyst Brian A. Johnson, who cited skepticism about the company’s ability to become a successful mass-market OEM in a report issued on Friday. Johnson maintained an Equal-Weight rating but lowered his price target from $220 to $200.
Many challenges for Tesla ahead
Johnson believes there are many challenges facing Tesla, “upon revisiting our margin and delivery estimates, we were reminded yet again that crossing that chasm is harder than it looks, especially in a new era of low oil prices,” the analyst noted.
According to Johnson, “softer volumes and margins,” are the primary reasons justifying a lower price target, adding that the new target better reflects the headwinds of “Tesla’s ramp” in production. However, the Equal-Weight rating reflects the belief that trading will be influenced “by the flow of near-term datapoints.”
Listing the challenges that Tesla Motors’ ramp faces, analyst said attaining the targeted volumes will require massive effort and “there will be no shortage of challenges along the way.” Also uncertainty in Europe and China “leads us to believe that Tesla has a greater probability of plateauing in the mass-luxury niche.”
GM’s Chevy Bolt to further hurt Tesla
Barclays’ report came just hours after General Motors announced its plans to release the “Tesla Killer” Chevrolet Bolt by October 2016. Tesla’s mass market Model 3 will arrive much later. A rival car from GM could further hurt Tesla’s mass market plans.
The majority of Tesla investors have based their investments on two main factors. One is the so-called “gigafactory,” and the other is the mass market Model 3. However, both plans will take some time to bear fruits for investors and Tesla.
Tesla Motors also lowered its delivery estimate for 2020 to 370,000 compared to 426,000 earlier. On margins, Johnson said Tesla could reach double-digit operating margins once it is fully ramped. Johnson believes the Street may be “under appreciating” that the car makers operating margins “will be suppressed through at least the end of the decade (i.e., low-mid single digits),” as the company has been raising its R&D and SG&A investment to support growth.
On Friday, Tesla Motors shares closed down 1.64% at $217.36.