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Analysts Downgrading Tesla (TSLA) Stock From ‘Buy’ to ‘Hold’

Roth Capital Partners downgraded Tesla (TSLA) stock from ‘buy’ to ‘hold’, as analyst Craig Irwin said he sees the shares’ risk-reward equation “as well balanced at current levels.”

He also noted that Tesla has a possible path for meeting at least the low end of its guidance to deliver between 360,000 and 400,000 cars this year. Irwin has a $238 price target on Tesla stock, saying he doesn’t expect more upside as compared to now.

Tesla is scheduled to report second-quarter results tomorrow. The stock is down 22% this year but there has been quite a rally for it fueled by better-than-expected quarterly sales.

Garrett Nelson, an analyst with CFRA Research said that the ability of the stock to move higher will mostly depend on the sales guidance. He added that he is being skeptical that Tesla will hit that goal. On average, analysts polled by FactSet expect the company to report Q2 revenue of $6.47 billion (up 62% annually thanks to the Model 3 production ramp).

In April, Tesla repeated their full-year guidance for 360,000 to 400,000 vehicle deliveries, up from a 2018 level of 246,000. Wedbush analyst Daniel Ives reiterated a ‘Neutral’ rating and a $230 price target on the stock and called this a “herculean task.” He said:

“If the company can demonstrate U.S. demand for 100,000 cars or more over the next few quarters then clearly this would be a major inflection point in the Tesla story and a potential thesis changer for the skeptics moving forward.”

It is estimated that 361,000 of vehicles will be delivered.

After the negative free cash flow (FCF) of $920 million in Q1, predictions are that Tesla will post FCF of $136 million in Q2, $51 million in Q3 and $311 million in Q4.

If we consider Model 3 gross margin, we should look for improvements in the second quarter since the vehicle’s deliveries surged 52% sequentially to a new quarterly high of 77,550 units.

Let’s also not forget that the company raised $$2.7 billion of capital during the quarter by offering both debt and equity. In addition, management’s forecast for positive free cash flow in Q2 bodes well for the metric. Just for reminder, Tesla recently announced another price cut for its vehicles but it still takes time to see if the demand will be going up into the second half of the year.

Analyst with Argus Research, Bill Selesky, said that the story of Tesla’s second-quarter immediately changed when it reported its production and delivery figures, which went higher than expected. He said:

“We are still hearing that demand trends bode well for Tesla. What remains to be seen is whether Tesla will rein in its costs and expenses and improve its margins.”

Fans of the stock are convinced Tesla will be able to improve gross margins through manufacturing efficiencies, including lowering battery pack costs. They also argue that the company will be able to cut down logistical expenses once it ramps production of Model 3s in Gigafactory 3 in China. TSLA expects to do this in 2020- and the initial production target is 250,000 vehicles a year.

At the time of writing, Tesla shares were still rallying being up 2.72% to $262.64.

Analysts Downgrading Tesla (TSLA) Stock From ‘Buy’ to ‘Hold’

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