UBS predicts Tesla shares will drop 30% in 12 months, says company may need to seek outside capital

  • UBS reaffirms its sell rating for Tesla shares, predicting the electric car maker will report second-quarter earnings per share below expectations.
  • "We believe TSLA will eventually need additional outside funding,” analyst Colin Langan says.

Tesla shares will fall significantly because the company will not be profitable in 2019, according to UBS.

The firm reaffirmed its sell rating for Tesla shares, predicting the electric car maker will report second-quarter earnings per share below expectations.

"We are cautious on TSLA Q2 results … Q2 results [will] likely highlight cash flow and profit challenges," analyst Colin Langan said in a note to clients entitled "Is the pricing strategy a prelude to a capital raise?" "The market should not ignore fundamental headwinds that persist with regards to TSLA's Model 3 profitability, stationary storage, and solar. … [W]e believe TSLA will eventually need additional outside funding."

Tesla shares declined 2.4 percent Monday.

Langan reaffirmed his $195 12-month price target for Tesla shares, representing 34 percent downside from Friday close.

The analyst noted the current available Model 3 ordering configurations are at higher price points, ranging from $49,000 to $80,000 per vehicle.

"We do not see sustainable profitability in the second half; however, given the higher priced initial mix, a Q3 profit is possible if TSLA can average production of over 3k/week. We expect margins to correct in 2019 as the mix normalizes toward a long term average," he said. "Our Sell thesis remains focused on cash burn, sustainable profitability, and quality concerns."

In May, Tesla said it expects positive GAAP net income in its third and fourth quarters.

The analyst lowered his Tesla second-quarter earnings per share forecast to a $3 loss from a $1.71 loss versus the Wall Street consensus estimate of a $2.88 loss. He raised his third-quarter earnings per share projection to a positive 72 cents from a 81 cent loss but lowered his 2019 earnings per share estimate to a $1.65 loss from a $1.15 loss versus the $2.34 consensus.

Tesla is slated to report its June quarter earnings results Wednesday. The company's stock is down 4.6 percent this year through Friday versus the S&P 500's 5.4 percent gain.

— CNBC's Michael Bloom contributed to this story.