Goldman Sachs Reinstates Tesla's Sell Rating, Cites Debt Maturity, Looming Competition

As Tesla Inc (NASDAQ: TSLA) continues to recover on its now-certain path as a public company, bears are revisiting a long-held concern: an impending surge in electric-vehicle supply.

The Analyst

Goldman Sachs analyst David Tamberrino reinstated a Sell rating on Tesla with a $210 price target.

The Thesis

Tamberrino said he expects rival launches in the EV market — coupled with the phase-out of federal EV tax credits — to weigh on Tesla’s gross margins and profitability, particularly given the firm’s extensive gap between Model 3 and Model Y rollouts. (See Tamberrino's track record here.) 

Expanding consumer options and lost incentives will pressure demand, the analyst said. 

“While we see the potential for a better near-term backdrop with growth in Model 3 production/deliveries driving positive free cash flow in [the second half of 2018], we believe this will likely not be sustained as working capital tailwinds abate and as spending ramps back up after a period of cash conservation,” Tamberrino said in a Tuesday note. 

At the same time, the analyst said he remains concerned about consistent increases in Tesla’s net-debt balance. While customer deposits have buoyed Tesla above Goldman Sachs’ minimum cash balance estimates, the metric recently posted a sequential decline. Tesla is likely to appeal to the capital markets in the first half of 2019 as convertible debt matures, he said. 

“Altogether, we remain bearish on the company’s ability to execute, achieve its targeted production ramp/margins and sustain FCF generation,” Tamberrino said.

“ ... We believe investors that are looking to be long TSLA are essentially underwriting growth to approximately 3.5 million annual units by 2025 — which we believe will likely be challenging to achieve given incremental competition coming, current capacity levels, capex requirements and historical operational execution.”

Price Action

Tesla shares were trading down 2.13 percent to $295.23 premarket Tuesday.

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