Tesla shares fall after Needham downgrades to sell, citing possible increase in Model 3 cancellations

Tesla shares fell on Thursday after Needham & Co downgraded the stock to sell from hold, citing a possible pick-up in Model 3 cancellations.

"Based on our checks, refunds are outpacing deposits as cancellations accelerate," wrote analyst Rajvindra Gill in the note Thursday. "The reasons are varied: extended wait times, the expiration of the $7,500 credit, and unavailability of the $35k base model."

"In August '17, TSLA cited a refund rate of 12%. Almost a year later, we believe it has doubled and outpaced deposits. Model 3 wait times are currently 4-12 months and with base model not available until mid-2019, consumers could wait until 2020," Gill added.

Tesla shares dropped 1.1 percent Thursday after the note. The shares were down 8 percent in the last one month through Wednesday.

When asked for comment, a Tesla spokesperson said, "The notion that Model 3 cancellations are outpacing orders is unequivocally wrong.” The spokesperson also added depending on the vehicle’s configuration, Model 3 wait times are currently 1 to 3 months, according to the company’s website.

Earlier this month Tesla ditched reservations and opened up Model 3 sales to anyone for a $2,500 deposit.

Gill also cited slower Model S and X sales, margin pressure, increased competition and valuation in the downgrade.

"We are downgrading Tesla to a sell from hold as we believe the stock is still overvalued despite it falling 16% from its peak set in June 2017," the note stated.