T. Rowe Price sold most of its shares in Tesla over first three months of year
Shares of Tesla (TSLA) are under pressure on Monday after Wedbush analyst Daniel Ives lowered his price target on the stock given "major concerns" around the underlying demand for the Model 3 in the U.S. His peer at Evercore had also cut Tesla's target last week, citing similar demand worries.
MODEL 3 DEMAND CONCERNS: In a research note to investors this morning, Wedbush's Ives lowered his price target on Tesla shares to $230 from $275, citing his reduced confidence in the company's ability to hit its 2019 unit guidance given "major concerns" around the underlying demand for the Model 3 in the U.S. Calling the electric carmaker's second half of the year profitability targets "a Kilimanjaro-like uphill climb," the analyst noted that mixed signals about Model 3 demand are becoming "incrementally more challenging" and argued that Tesla should be focused on shoring up demand for the Model 3 rather than expanding into insurance, robotaxis, and "other sci-fi projects/endeavors."
Overall, Ives argued that hitting the 360,000-400,000 unit demand guidance for 2019 is going to be a "Herculean task" as in a best-case scenario he sees 360,000-370,000 at this point and in a base case 340,000-355,000 the likely path "given the current tea leaves in the field around demand." Nonetheless, longer-term production targets are attainable for Tesla, he added, as it all comes down to the right balance of its cost structure versus hitting production targets in Fremont and the Gigafactory, which remains a "lingering challenge for the company." The analyst reiterated a Neutral rating on Tesla shares.
Voicing similar concerns last week, Evercore ISI analyst Arndt Ellinghorst also lowered his price target on Tesla's shares to $200 from $240, and said he now estimates 343,000 total deliveries for 2019, down from his prior estimate of 368,000. Additionally, the analyst lowered his revenue estimates for 2019, 2020 and 2021 due to concerns around production, demand and macroeconomic conditions. Tesla still trades at a "huge valuation premium" to any automotive peers and the only thing that can justify such valuations is "supernatural growth and best in class execution," both of which are in question right now, he contended. Reiterating an Underperform rating on the shares, Ellinghorst said he believes Street estimates are "way too high" and production shortfalls will continue through the year.
CAR FIRES IN CHINA IGNITE CONCERNS: Fires involving Tesla vehicles in China are prompting the electric vehicle industry to implement safety measures and raising concerns around the safety of electric-car batteries, Bloomberg reported on Friday. Fear and skepticism surrounding such concerns could affect momentum and growth for electric vehicles, as China makes up more than half of all electric car sales globally, the report said.
AUTOPILOT ENGAGED AT TIME OF CRASH: The National Transportation Safety Board issued its preliminary report last week regarding its ongoing investigation of the fatal, March 1, 2019, highway crash near Delray Beach, Florida that involved a 2018 Tesla Model 3 vehicle and an International truck-tractor in combination with a semitrailer. The report stated that, "According to surveillance video in the area and forward-facing video from the Tesla, the combination vehicle slowed as it crossed the southbound lanes, blocking the Tesla's path. The Tesla struck the left side of the semitrailer. The roof of the Tesla was sheared off as the vehicle underrode the semitrailer and continued south... The 50-year-old male Tesla driver died as a result of the crash. The 45-year-old male driver of the combination vehicle was uninjured...Preliminary data from the vehicle show that the Tesla's Autopilot system-an advanced driver assistance system that provides both longitudinal and lateral control over vehicle motion-was active at the time of the crash.1 The driver engaged the Autopilot about 10 seconds before the collision. From less than 8 seconds before the crash to the time of impact, the vehicle did not detect the driver's hands on the steering wheel."
WHAT'S NOTABLE: T. Rowe Price (TROW) sold roughly 81% of its shares of Tesla over the first three months of the year, according to a regulatory filing. The fund manager held 1.7M Tesla shares as of March 31, down from 8.9M shares at the end of 2018, according to the filing.
PRICE ACTION: In morning trading, shares of Tesla have dropped almost 6% to $198.84.