Investing

Bernstein analyst is 'skeptical' about Tesla Model 3's profitability, predicts stock drop

Key Points
  • Bernstein reiterates its market perform rating on Tesla shares, warning investors the electric-car maker will have difficulty meeting its profit margin forecast.
  • "We believe Model 3 gross margins and build quality are the key investor controversies; we remain skeptical on both fronts," the firm's analyst writes.
Tesla pauses Model 3 production to focus on automation
VIDEO1:2601:26
Tesla pauses Model 3 production to focus on automation

Tesla's manufacturing issues will not improve significantly this year, according one Wall Street firm.

Bernstein reiterated its market perform rating on Tesla shares, warning investors the electric-car maker will have difficulty meeting its profit margin forecast.

Buzzfeed reported Monday that Tesla is temporarily shutting down production of the Model 3 at its factory in Fremont, California, for a few days.

"We believe Model 3 gross margins and build quality are the key investor controversies; we remain skeptical on both fronts," Bernstein analyst Toni Sacconaghi wrote in a note to clients Tuesday. "Another capital raise appears likely, unless Tesla's ... able to materially reign in near-term opex or capex spend."

Sacconaghi reaffirmed his $265 price target on Tesla shares, representing 9 percent downside to Monday's close.

The analyst said Tesla repeatedly missed its Model 3 production targets over the past year. He doubted the company's ability to reach its 25 percent gross profit margin target for the Model 3.

In regard to Tesla's stock price "I would probably take the down side in the near term," Sacconaghi said. "I think there will be worries about fundamental profitability and/or worries about quality at some point over the next six to nine months."

Tesla did not immediately respond to a request for comment.

Disclaimer