This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Tesla Plunges as Merrill Questions Valuation

NEW YORK (TheStreet) -- Tesla Motors (TSLA - Get Report) shares dropped 4.7% to $163.53 as Bank of America Merrill Lynch questioned the company's potential for execution challenges and noted the stock is overvalued.

Analyst John Lovallo II, who has a "underperform" rating and a $45 price target on Tesla shares, notes that shares "are vastly overvalued from a fundamental standpoint in reports such as 300K reasons to have doubt and Caution: Oversize Load implied in current share price." Given the run-up in shares, 383.9% year-to-date, Lovallo notes that retail investors could be at risk, as institutional investors continue to wane on owning shares of the Palo Alto, Calif.-based electric car maker.

"This appears to be slowly occurring, driven by factors such as the recent Model S battery fire and potential NHTSA probe, and speculation of a slowdown in the company's European expansion," Lovallo wrote in the note. "In fact, TSLA shares are down roughly 12% from their 9/30 closing price of just over $193/sh. While the recent decline pales in comparison to the year-to-date hyperbolic growth of the shares, it could foreshadow emerging cracks in the seemingly ironclad façade surrounding Tesla's stock."

There's also the question of "meaningful execution challenges remain," Lovally notes, as Tesla moves past early adopters of the Model S, and looks toward the broader market for adoption of electric vehicles. "Despite TSLA's technology and the beginnings of a charging station network, we believe the average consumer remains unlikely to sacrifice convenience in order to own an electric vehicle. Therefore moving into the mass market (key to the bull thesis) could prove extremely difficult, and will also be met by similar EV offerings from many incumbent OEMs with deep pockets and the ability to compete on pricing."

With the company set to report third-quarter earnings next month, Lovallo is advocating investor caution, given the wide range of expectations for Model S deliveries.  When Tesla reported second-quarter results in August, the company said it expects to deliver slightly over 5,000 cars as the company expands into Europe, and remains on track to deliver 21,000 Model S units during the year. The company said it expects non-GAAP gross margins to be "in the low 20% range, with continuing improvements in Model S vehicle margin, offset by significantly lower ZEV credit revenue."  Lovallo expects Tesla to deliver 5,500 Model S units, with some analysts expecting as many as 7,000 units. 

Analysts surveyed by Thomson Reuters are expecting Tesla to report earnings of 11 cents per share on $535.4 million in revenue.

--Written by Chris Ciaccia in New York

>Contact by Email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TSLA $241.82 0.44%
AAPL $93.66 -0.09%
FB $118.58 0.85%
GOOG $698.30 0.76%
YHOO $36.53 -0.19%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs