Pacific Crest Cuts Target On Tesla To Under $200

Pacific Crest’s Brad Erickson mentioned checks suggest the initial demand for Tesla Motors Inc TSLA's new, lower priced car has been robust, which could prove dilutive to the gross margin.

Erickson maintains a Sector Weight rating on the company, while lowering the fair value from $212 to $190.

Mix Shift

The analyst elaborated that checks with 15 sales centers around the United States revealed demand for the recently launched, less expensive, 60 kWh Model S had seen a strong start, meaningfully better than the earlier 70 kWh Model S that was upgradable to 75 kWh with the payment of an additional $2,500.

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“Specifically, we think that roughly half the demand for non-90 kWh Model S cars is skewing toward this lower-priced, lower-margin car, which we estimate could account for a bit over 10 percent of total units,” Erickson stated.

Estimates Lowered

The out-quarter unit estimates have been marginally lowered, as have been the average selling price (ASP) and gross margin estimates, to reflect growing concerns regarding the unfavorable Model S mix shift, as well as “broader company read-through from the persistent supply chain challenges highlighted by the Model S hiccup this quarter.”

Erickson continues to believe the Model 3 is overly ambitious and plagued with financial risk, which is likely to limit visibility into a steady path to profitability.