Tesla (TLSA) stock price fell about 2.5 percent, after a Needham analyst, Rajvindra Gill, downgraded it with his concerns about an increasing rate of Model 3 cancellations, profitability concerns, and a flurry of electric-vehicle competition from traditional automakers.
These are not the only problems that Gill cited in his note to clients. Tesla is currently dealing with a significant number refunds that are outpacing deposits as cancellations accelerate because of the expiration of the $7,500 credit and unavailability of the $35,000 base model.
"In August '17, TSLA cited a refund rate of 12%. Almost a year later, we believe it has doubled and outpaced deposits. Model 3 wait times are currently 4-12 months and with base model not available until mid-2019, consumers could wait until 2020," Gill said.
"The notion that Model 3 cancellations are outpacing orders is unequivocally wrong,", said Tesla spokesperson when asked for comment.
Even though various experts have said the car could be profitable, Needham doesn't think so. The firm cut its gross margin estimate for Tesla's total profit by the end of the year to 16.3%, well below the Wall Street consensus of 19.9%.
Just like other Wall Street analysts, Gill is also concerned about Tesla's cash burn, believing that Tesla's capital structure is "unsustainable." Tesla is still relentlessly claiming that it will be profitable in the second half of this year and will not need to raise additional capital, but analysts from Goldman Sachs and UBS have a different opinion. They are convinced that Tesla will probably have to raise another round of capital in order to pay off debt that is coming due and keep up production.
"We are downgrading Tesla to underperform from hold as we believe the stock is still overvalued despite falling 16% from its June 2017 peak (the S&P 500 is up 15% over the same 56-week period)," Gill said.
According to regulatory filing, Tesla burned through $1.1 billion cash in the first quarter of 2018, which is still a slower burn than in previous quarters, which amounted $1.4 billion. The company's share price is down 8% since last month.
By Damir Kaletovic for Oilprice.com
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