Shares of Tesla Motors Inc (NASDAQ:TSLA) were under pressure in the premarket session Thursday, falling almost 3% on strong volume. And the pain continued after the open, all after analysts at Goldman Sachs not only downgraded Tesla stock to “neutral” from “buy,” but also slashed its price target to $185 from $240.
But how much of the bearish thesis should investors buy into?
In a research note to investors Thursday, Goldman Sachs cited the fact that TSLA stock had only risen 0.1% compared to a better-than 5% climb in S&P 500 index, versus its coverage calling for a better-than 6% rise since Goldman added Tesla stock to its buy list on May 18.
Goldman Sachs blamed the underperformance of Tesla stock on the fact that CEO Elon Musk has spooked investors with his capital deployment plan for potential M&A.
In other words, Goldman is saying that its Tesla buy recommendation on May 18 was the right call, but Tesla management made some wrong decisions. And now Goldman, which also believes that any delay in the company’s timeline to launch its new Model 3 vehicle will be detrimental to shares, sees “incremental risk to the business.”
But here’s the thing: It was Goldman Sachs that assisted Tesla with its secondary stock offering back in May — the same day it then upgraded TSLA stock to a buy rating.
Was the timing of Goldman’s upgrade and the release of Tesla’s secondary stock offering a coincidence? At the time, Goldman Sachs said it saw potential for the Tesla stock to rise 22% to its six-month price target of $250. Tesla stock traded at $220 at the time. The highest the shares ever got was $240.84 on June 8.
On September 13, Tesla stock fell to $193, marking a 20% decline since the June 8 high. Goldman Sachs didn’t downgrade the shares then.
Since the $193 low, Tesla stock has risen as high as 12%, reaching $215.67 this past Monday, thanks to Tesla announcing preliminary third-quarter delivery results. The company said it had delivered 24,500 cars in the third quarter. That marks an almost 40% jump from the second quarter, and is also Tesla’s highest sales total ever.
Plus, on a year-over-year basis, that number more than doubled.
Third-quarter production climbed 37% sequentially, at 25,185 vehicles, the company said. It would seem, despite Goldman’s change in tune, Tesla is operating on its stated objectives.
So why downgrade the stock now, when it appears that Tesla stock’s fourth-quarter production totals may surpass the strong numbers produced in the third quarter?
Indeed, the company is spending tons of cash to deliver on its aggressive production totals. And the fact that Elon Musk is pushing through with the acquisition of SolarCity Corp (NASDAQ:SCTY) may have added additional pressure on Tesla’s cash position. But from the standpoint of TSLA stock, it’s clear Goldman Sachs has had no clue.
And with production of its Model 3 sedan, which the company says is on target to launch by late 2017, Tesla stock should be owned, not traded. And Goldman Sachs should be ignored.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
