Canaccord Genuity analyst Jed Dorsheimer who initiated coverage on Tesla in early August, slashed his price target from $336 to $316, while maintaining his “Hold” rating. The analyst cited cash constraints, self-inflicted problems and model 3 production rate as reasons for hits price cut.
What did Jed Dorsheimer write in his note to investors?
“A series of self-inflicted problems could open the door for new entrants with greater financial backing, such as the Toyota/Uber opportunity, for example,”.
“With $2.2B in cash at the end of Q2, Tesla only has enough cash to maintain operations for another six to nine months at its current rate….With a $230M tranche due in November 2018 at $560/share and $920M due in March 2019 at $360/share, Tesla will need to secure profitability by the end of the year to maintain solvency.”
Main reason for slashing price target:
Dorsheimer expects Tesla to build 48,000 units during the third quarter, less than his previous expectation of 52,000 units.
Why is it important?
Though analysts upgrade and downgrade stocks all the time, Tesla’s stock price continues to gyrate between the flow of positive and negative news . As one of the most watched and shorted stock in United States, analyst upgrades and downgrades tend to weigh heavily on the stock, even if it is for a short period of time.
The discussion around Tesla’s cash position and solvency has been around for some time. Not many analysts expected Tesla to exit the second quarter with $2.2 billion cash on hand, but Tesla surprised everyone on that front. Tesla burned less than $500 million cash during the second quarter, which was a much better performance compared to the near billion dollar cash burn during the first quarter.
