Tesla Motors shares slumped by as much as 5.45% to $265.55 per share today after Deutsche Bank analysts downgraded the EV manufacturer based on valuation. It should be noted that the firm has been one of the more bullish firms on Tesla for quite some time, so it’s no surprise that the downgrade sent the company’s shares into a dive.
Deutsche Bank’s downgrade comes less than a week after Citron Research referred to Tesla Motors as a “stupid stock.” It also runs counter to a handful of price target increases the automaker has earned recently.
Barclays still likes Tesla
In a report dated July 7, analyst Rod Lache and his team said they downgraded Tesla stock from Buy to Hold and set a price target of $280 per share. They remain positive on Tesla’s opportunities beyond automobiles based on the company’s success in the EV market. The company said previously that its expertise in batteries has allowed it to expand into the stationary storage market, and Lache agrees.
More specifically, they like the EV manufacturer’s energy storage products, although they point out that the market is in its early stages. Last year there were only 1.2 GWh in stationary energy storage added in the U.S. By 2020, the Deutsche Bank team expects this market will climb to 14.3 GWh. Further, they think the global market could be more than double that level, and they say it’s likely that Tesla will become one of the stationary energy storage market’s dominant players.
Investors like Tesla’s prospects in energy storage
However, they think these prospects are already factored into Tesla’s current share price, which is why they downgraded the automaker’s stock.
The Deutsche Bank team spoke to experts in the energy storage market and came away believing that the total addressable market for Tesla’s energy storage products could exceed $3 billion per year just in the U.S. by 2020. They also noted that Tesla’s scale, plus its technical knowledge, positions it to become a dominant player in energy storage.
If Tesla grabs half of the market and achieves an operating margin of 15%, Lache and team estimates that the automaker would see an additional $2.20 per share in earnings from the segment. That’s on top of the $20 per share they estimate Tesla will see from churning out 500,000 vehicles a year. Here’s a look at the breakdown of their target price.
Tesla may do well in utilities
The Deutsche Bank analysts think Tesla will have the biggest opportunity for energy storage in Utilities, as they estimate 4.5 GWh per year will be installed by 2020. That would amount to about $900 million per year for Tesla. Of course that assumes batteries are able to fix the power outage problem. They also think that energy storage will start to replace “peaker” plants and potentially represent half of the 5.6 GW per year of new or replacement capacity.
After Utilities, they see Commercial and Industrial applications as offering big opportunities for Tesla. The Deutsche Bank team pointed out that NREL estimates that just 0.24 watts per square foot in battery storage capacity is enough to help with surcharges in demand. The two applications could reach between $0.14 billion and $0.35 billion per year in the U.S. within the next five years.
