RBC Capital reverses its rating for Tesla to ‘underperform’ from ‘sector perform’ on growth concerns

RBC Capital has reversed its rating for Tesla Inc. (NASDAQ:TSLA) to ‘underperform’ from ‘sector perform’ to reflect concerns over downward pressure on growth expectations for the US electric vehicles manufacturer.

The Canadian broker also reduced its target price for Tesla to $245, down from $290 previously, with the shares trading at $293.50 in pre-market New York trading on Wednesday, down 1.8%.

READ: Tesla set to launch key Model 3 in Europe next month after clearing the final regulatory hurdle

In a note to clients, RBC’s analysts said: “For years, Tesla sold the dream of transportation disruption and fantastic growth. This served the stock well turning Tesla into a top 6 (at times top 3) valuable auto OEM despite delivering a fraction of units of others and nary a profit.”

They added: “A stock should, of course, discount future cash flows and the market took the promises of Tesla and their future growth potential to justify lofty valuations while Tesla took capital needed to support their endeavors.”

“But,” the analysts continued, “the rubber appears to be hitting the road as the realities of Tesla becoming a volume player, the challenges to scale and deliver high volume at high ASPs/margins are coming to a head.”

They said: “Whether its cutting the price of their lineup by $2k/unit, admission the federal tax credit expiring will hurt, acknowledgment that Tesla can’t sell at $35k Model 3 profitably and costs need to come down, or language around full-self driving – we’d classify recent commentary and actions by the company as more realistic.”

The RBC analysts concluded: “This is likely to cause a review of model assumptions leading to negative expectation revisions.”

Story by ProactiveInvestors