Tesla receives lower price target as Goldman questions ‘sustainable demand’ for Model S,3,X

Tesla shares (NASDAQ:TSLA) could face some volatility this Thursday, as analysts from Goldman Sachs and RBC Capital Markets downgraded the electric car maker’s stock. In a note to the firm’s clients on Thursday, Goldman Sachs analyst David Tamberrino questioned the “sustainable demand” for Tesla’s Model S, X, and 3, arguing that the “downward path” for the company’s shares will resume.

Tamberrino, who has been one of Tesla’s most aggressive critics in Wall Street, lowered his price target for TSLA stock from $200 per share to $158 per share. This represents a potential ~30% drop from the electric car maker’s $226.43 closing price on Wednesday. In his note, the Goldman analyst argued that the decline in Tesla shares would resume as it becomes evident that demand for the company’s electric cars is “below expectations.”

“We believe that is the largest question for investors to underwrite at this point — what are sustainable demand levels for the Model S, Model X, and Model 3 — and how does that change with the introduction of Model Y production? We believe a downward path for shares will resume as it becomes more clear that sustainable demand for the company’s current products are below expectations,” Tamberrino wrote.

The Goldman analyst did admit that deliveries in the second quarter will likely meet forecasts, though he insisted that delivery forecasts in the second half of the year are too optimistic.

“Volume estimates for the second half of the year look generous considering there are fewer levers (such as lower prices and leasing options) to pull to stoke demand going forward. Further, when coupled with a lack of direct impetus to open up new demand pockets (other than introducing incentives or more attractive financing rates) and another step-down in the US Federal Tax Credit for Telsa vehicles beginning on July 1, we believe 2Q19 was a better environment for demand and thus deliveries, but to a level that is likely not sustainable,” Tamberrino added.

It was not just the Goldman Sachs analyst that gave Tesla a pessimistic outlook on Thursday. In a recent update, RBC Capital Markets also opted to lower its earnings estimates for the electric car maker.

Goldman and RBC’s sentiments lie in opposition to the forecasts of Tesla’s supporters from Wall Street. In a recent note, Tesla bull and Berenberg analyst Alexander Haissl noted that claims questioning the demand for the company’s electric cars are “decoupled from reality” and “overblown.” Haissl further argued that the negative sentiments surrounding Tesla today fail to understand Tesla’s “technological and cost advantage” over its competitors.

“Demand worries are overblown, as the Q1 volume weakness was largely self-inflicted by logistic problems, uncertainty about store closures and changing pricing structure, and not indicative of the underlying demand situation,” Haissl wrote.

Baird analyst Ben Kallo, another Tesla bull, noted this past Monday that the recent rise in TSLA shares could be related to the “start of short covering over the next few weeks.” According to Kallo, several aspects are in place today that could trigger short covering, including “several upcoming catalysts,” the 40 million TSLA shares that are currently sold short, and the fact that the “demand issue will be proven false.”

Elon Musk, for his part, has assured Tesla investors that there are no issues with the demand for its vehicles. During the company’s annual shareholder meeting, the Tesla CEO noted that there is even a “decent chance” that Tesla would reach new records in the second quarter.

Tesla stock was down 1.85% at $222.25 per share after Thursday’s opening bell.

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.