Initial demand for Tesla Motors Inc (NASDAQ:TSLA)’s Model S sedan in China is strong, with four to five months’ wait time for delivery. Analysts at Barclays Equity Research believe that more incremental demand for the electric car will come from Chinese consumers by the end of the year.
Increased competition
In a note to investors, Barclays Equity Research analyst Brian A. Johnson and his colleagues say that Tesla Motors Inc (NASDAQ:TSLA) is facing some near-term momentum challenges, particularly in the United States. According to them, the Model S is facing increased competition from Bayerische Motoren Werke AG (ETR:BMW), and they believe that demand for the electric vehicle is “plateauing.”
Johnson noted that Tesla Motors Inc (NASDAQ:TSLA) management tried to “quash fears” that demand for the Model S in the United States was modest by stating that the number of orders for the electric vehicle increased by 10% sequentially in the first quarter. The company also emphasized that Model S deliveries are still production-constrained.
2Q guidance put Tesla stock in ‘penalty box’
The analysts also say the guidance provided by Tesla Motors Inc (NASDAQ:TSLA) was disappointing and puts the company’s shares in the “penalty box” in the near-term. Johnson said, “Whereas investors had grown accustomed to Tesla providing delivery guidance ahead of expectations, the trend was broken for 2Q, as deliveries were guided to 7,500 units, below our in-going estimate of ~7,800.”
In addition, Johnson noted that Tesla Motors Inc (NASDAQ:TSLA) expected its second quarter to be “marginally profitable,” compared with the 27 cent per share consensus estimate.
Positive observations
Johnson also said one of the positive developments reported was that Tesla Motors Inc (NASDAQ:TSLA)’s first quarter earnings of 12 cents per share beat the consensus estimate. However, that was still below his 16 cent per share estimate.
According to the analyst, management also minimized uncertainties regarding its partnership with Panasonic Corporation (TYO:6752) after signing a letter a letter of intent to partner on its gigafactory. Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk also emphasized his confidence that the electric car manufacturer will achieve 30% reduction in battery cost per kwh, and was cautiously optimistic that it will exceed the 30% target.
Furthermore, Johnson observed that Tesla Motors Inc (NASDAQ:TSLA) continues to achieve cost reductions as it maintained its gross margin guidance of 28% by the fourth quarter. The company also plans to switch its production line in the third quarter to reduce labor and overhead costs, and it will benefit from increased automation and more optimal manufacturing.
Jonson maintained his Equal-Weight rating and $220 price target for shares of Tesla Motors Inc (NASDAQ:TSLA).
Tesla stock tumbles 10%
The stock price of the company is down by almost 10% to $181.20 per share at the time of this writing around 2:26 P.M. in New York on Thursday. Over the past 52 weeks, Tesla Motors Inc (NASDAQ:TSLA)’s stock price reached as high as $265 per share. Investors have been selling off their stakes in momentum stocks, including Tesla Motors, and Prem Watsa previously warned about a new bubble in the tech industry. The current decline was primarily caused by its disappointing 2Q guidance.
A separate report from an equity risk management firm indicates that shares of Tesla Motors Inc (NASDAQ:TSLA) are currently at an elevated risk and issued an exit trigger to investors.
