Tesla shares fell 4.75% in early trading Tuesday after UBS analyst Colin Langan downgraded the stock from Neutral to Sell. UBS has become the third investment bank to downgrade Tesla this month. On July 9, Pacific Crest had downgraded the stock from Overweight to Sector weight. A day later, Deutsche Bank cut its rating from Buy to Hold, citing sky high valuations.

Tesla Motors Inc (TSLA) Tumbles On UBS Downgrade

Tesla’s Powerwall orders figure ‘misleading’

UBS also slashed its 12-month price target from $220 to $210. Colin Langan believes that the electric vehicle maker’s home battery and car sales growth both would disappoint. Tesla launched its home energy storage solution Powerwall on May 1. UBS said the stock’s current valuations have priced in full utilization of Tesla Motors Inc (NASDAQ:TSLA)’s storage capacity and more than 1.5 million annual vehicle deliveries by 2025.

Tesla

In May, Tesla Motors Inc (NASDAQ:TSLA) claimed that it had received orders worth $800 million within five days of announcing Powerwall. UBS says the claim was “misleading as customers did not put down deposits.” These were just solicitations of interest, so not all of that is going to turn into actual sales. What’s more, the initial orders were driven up by early adopters. Once these orders are filled, Tesla will find it difficult to make the mass market leap.

Can Tesla meet its energy storage target?

The Palo Alto-based EV maker has planned 15GWh of storage capacity by 2020. Langan believes that Tesla Motors Inc (NASDAQ:TSLA)’s planned capacity may be much bigger than the market itself by 2020. He estimates market demand of just 3.2GW within five years, much lower than the consensus estimate of 7.2GW. Colin Langan argues that even if the consensus estimate turns out to be correct, Tesla will need at least 75% market share to fully utilize its 15GWh capacity. There is plenty of room for new technology and entrants to erode Tesla’s early mover advantage.

Langan also slashed his 2015 EPS estimate from $1 to $0.20, citing an increase in R&D and operating costs due to investment in the battery business and Model 3.

Tesla Motors Inc (NASDAQ:TSLA) shares were down 5.15% to $267.71 at 11:03 AM EDT on Tuesday.