Tesla demand may be less than believed

Futurist Elon Musk has many ardent believers, but apparently analyst John Lovallo is not one of them.

Electric vehicle manufacturer Tesla’s shares are down more than 3% on Monday following the release of a negative report by Bank of America Merrill Lynch analyst John Lovallo. Saying the optimistic thesis for Tesla has now been “largely debunked…”, Lovallo cut his price target for the firm from $70 to $65, well below the $210 area where shares are currently trading. The key thesis of his argument is that the demand for Tesla’s expensive EVs is actually much less than CEO Elon Musk would have investors believe.

Tesla Motors Inc Stock Falls After BofA Slashed Its Price Target

Quote from BofA report on Tesla by John Lovallo

Lovallo explains his argument below: “We have long contended that Tesla’s primary challenge is a lack of demand for its [electric vehicles.] Tesla’s management and the bulls consistently argue that the company can stimulate demand at will and that the true issue is capacity and supply. In our view, this optimistic thesis has been largely debunked, given that we now know Tesla is producing at levels that are both well below past run-rates and the company’s current installed capacity. In other words, Tesla appears to be pulling back on production.”

Bulls believe Tesla will be ramping up production soon

Tesla bulls have been saying for some time now that the company will be increasing production soon and begin to crank out tens of thousands of cars. Musk has said that  2015 production should increase up to 55,000 vehicles, compared to 35,000 in 2014.

Lovallo and a few other Tesla bears say the major production ramp up thesis is simply not true.

Doubts about the demand for Tesla’s EVs first began surfacing last year, even before the launch of the new all-wheel-drive version of the Model S sedan. Data is also showing that Tesla deliveries in China, touted as a key growth market, haven’t been as high as expected.

Of note, Tesla also recently reported its fourth-quarter and full-year 2014 earnings, which were below analyst expectations. In addition, the firm had t postpone 1,400 deliveries scheduled for 2014 into 2015.

While still a relative high flyer at around $210 a share, Tesla shares have slipped significantly from their $292 peak in the fall of 2014.