On October 31st, UBS expressed concerns over Tesla's struggles with Model 3 production, viewing it as a sign of deeper issues within the company. The firm maintained its "sell" rating on electric vehicle stocks, signaling skepticism about the sector’s future performance. Despite this, UBS acknowledged that Tesla is still expected to continue producing the Model 3, albeit at a slower pace than initially anticipated.
In the third quarter, Tesla delivered a total of 26,150 electric vehicles, including 220 Model 3 units, falling slightly short of FactSet’s estimates of 25,860 and 1,260 respectively. Two months prior to the release of these figures, Tesla had projected producing 1,500 Model 3s during the quarter. UBS analyst Colin Langan highlighted in his report that the underperformance of the Model 3 could damage Tesla’s credibility and increase near-term risks. He emphasized that the market should not overlook the fundamental challenges Tesla faces, such as the profitability of the Model 3, the stability of its energy storage and solar business, and the potential need for additional capital.
Tesla’s stock experienced a slight decline on Monday morning, despite a 50% year-to-date gain. In comparison, the S&P 500 has risen by 15% this year. Rankan, an analyst at UBS, reaffirmed his 12-month price target for Tesla at $185, which is 42% below the closing price from the previous Friday. He also revised his financial outlook downward, citing the slow progress in Model 3 production as the main reason.
Rankan now expects Tesla to report a loss of $6.40 per share in 2017, up from his earlier forecast of $5.30 and $3.30 for 2018. This is significantly higher than his previous estimate of $1.60. He noted that with limited profitability from the Model 3, expanding infrastructure needs, and the upcoming launch of the Model Y in late 2019, Tesla may eventually require further external funding. As luxury automakers introduce new electric models between 2018 and 2020, demand for EVs is expected to grow, putting more pressure on Tesla to keep up. The company has not yet responded to requests for comment.
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