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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.
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