RBC downgrades Tesla, says growth expectations too high

RBC Capital Markets cut its stance on Tesla to 'underperform' from 'sector perform' on Wednesday, taking the price target down to $245 from $290 as it argued that growth expectations are too high to justify current levels.

"The company seems to be more tactful with messaging which is a long-term positive, but means downward pressure to growth expectations - which in our view are too high to justify current levels, let alone to add to positions," said analyst Joseph Spak.

He noted that for years, Tesla sold the dream of transportation disruption and fantastic growth, which served the stock well and turned the electric car maker into a top six valuable auto OEM despite delivering a fraction of the units of others and "nary a profit".

"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 endeavours.

"But 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."

He said the company's recent, more realistic commentary - which has seen it cut the price of its line-up by $2k, admit the federal tax credit expiring will hurt and acknowledge that it can't sell the Model 3 profitably at $35k - will most likely lead to negative expectation revisions.

Spak added that given 2019 deliveries are likely to be close to 4Q18 run-rate, but with a price/mix headwind, the third quarter may have been peak profitability this decade.

"Even in an optimistic case at least 1/3rd of today's price is an 'Elon premium'," he said.

At 1455 GMT, the shares were down 3.4% at $288.92.