Goldman Sachs told clients to stay away from Tesla shares, predicting significant downside in the wake of weaker-than-expected demand for its electric vehicles and rushed decisions by management.
"We maintain our sell rating, and now expect 1Q19 deliveries/earnings to disappoint," analyst David Tamberrino said in a note to clients Wednesday.
Tamberrino's 12-month price target is $210, representing a 25 percent drop from current levels. Tesla shares fell 0.2 percent in premarket trading Wednesday to $282.70.
"After looking through our typical monthly delivery indicators, we are lowering our Model S and Model X forecasts for 1Q19 to an aggregate 17,300 vehicles (from 20,700) — as we believe International demand headwinds and Model S cannibalization (from Model 3 vehicles) will likely weigh," Tamberrino wrote. "However, we are maintaining our current Model 3 forecast for 57,500 deliveries in 1Q19 — despite estimating only approx. 21k through February — as we believe the company has the potential to deliver at least 10k more Model 3s in each region with vehicles produced/already shipped Internationally and as Model 3 production in March was re-directed back toward the US market."
The analyst noted that his forecast for 75,000 vehicle deliveries this quarter is 8 percent below the Wall Street consensus. His first-quarter EPS estimate is for a loss of 87 cents, compared with a consensus Wall Street estimate for a 37 cent profit, according to FactSet.
Tesla shares are already down more than 14 percent this year as investors weigh a confusing set of events. Tesla announced last month that it would be selling the Model 3 at the base model price for the masses of $35,000. The company also said it would be shifting to online sales exclusively and closing most of its stores. CEO Elon Musk on Sunday then said the carmaker would keep more stores than expected open and that it would be raising prices on models of other cars besides the Model 3.
Goldman believes these have been rash decisions that shouldn't comfort investors and hint at demand issues:
"TSLA has also made a few announcements regarding its sales strategy in the past two weeks — first announcing a move to online-only sales which was combined with expected store closings and reduction in sales staff, but then moved back on its communicated strategy and decided to temper the store closing expectations. We believe the initial decision was only made recently, as the company was still increasing its store count in 4Q18 (as noted in its earnings press release) and continuing to build out its reach to consumers; and the slight reversal may have been a reaction to initial discussions with landlords/REITs... And while the net price reduction (3% after the two announcements) is expected to be offset by store closure savings, this decision ultimately pressures gross margins and would leave lowered operating costs to offset it. Altogether, this further points to some waning demand for higher price vehicles — as the announced price reduction would not be likely coming from lower materials costs, improved manufacturing expenses, or lower transportation and logistics costs, but from reduced selling expenses."
— With reporting by CNBC's Michael Bloom