UBS Downgrades Tesla To Sell, Says Battery Storage Orders Are 'Misleading'

In a report published Tuesday, UBS analyst Colin Langan downgraded the rating on

from Neutral to Sell, while lowering the price target from $220 to $210, on expectations of disappointing storage and auto volume growth. According to the UBS report, "The stock has jumped +40 percent since the anticipation of the storage announcement; however, our analysis indicates that TSLA's current planned 15GWs of storage capacity may be larger than the market in 2020." The analyst believes that the early storage orders could be misleading. The company received "orders" of more than 800 million in the first five days of having announced its Powerwall/Powerpack offering. However, given that customers have not given any deposits for these orders, they could just be an expression of interest and therefore Tesla Motors' capacity might exceed demand by 2020. "More importantly, early adopters ("green" consumers) likely are driving up initial orders, but once these orders are filled, making the mass market leap will likely be difficult given the challenging economics," analyst Langan stated. While the Street expects market demand of over 7.2GW by 2020, UBS estimates demand at about 3.2GW. Even if the consensus forecast is met, Tesla Motors would need to gain 75 percent market share to be able to fully utilize its storage capacity of 15GWh. On the other hand, given the slow ramp in storage, the analyst believes that there is a lot of room for new entrants as well as technology to eat into the company's early mover advantage. The analyst also believes that there are growing near term challenges for the company, given the rising costs of R&D and SG&A, funding required for investments in new plants and the entry of new competitors in the market.