Bank of America Reiterates on Tesla Motors as Potential Recall is Not The Real Problem, But Unrealistic Volume Is

In a report published Wednesday, Bank of America analyst John Lovallo II reiterated an Underperform rating and $45.00 price target on Tesla Motors TSLA. In the report, Bank of America noted, “Battery fires, the ongoing NHTSA investigation, and speculation of a Model S recall have dominated recent news flow and added downward pressure to TSLA's stock. While these concerns may be valid, we believe an even more significant risk for shareholders lies in the fact that Tesla's current market value continues to imply lofty and possibly unrealistic volume expectations. In fact, our analysis suggests that despite the recent 38% pullback in its share price, Tesla would still need to sell approximately 348K vehicles per year by 2020, or 16X expected 2013 volume, to begin to justify the current market price. Furthermore, we estimate that Tesla would need to generate luxury vehicle EBIT margins of about 12.5% on this volume, which appears a stretch given that the majority of the company's sales will likely be attributable to its mass market Gen 3 model by that time. In short, we believe that significant fundamental headwinds confront Tesla's current stock price, which extend well beyond a potential near-term Model S recall.” Tesla Motors closed on Tuesday at $120.50.