Market Overview

Vertical Group Turns More Bearish On Tesla, Doesn't Expect Company To Go Private

Vertical Group Turns More Bearish On Tesla, Doesn't Expect Company To Go Private
Related TSLA
Tesla Trades Higher After Judge Approves Musk's SEC Settlement
Saudi Arabia Mixes Oil, Politics After Journalist's Disappearance Strains US Ties
The Tesla Model 3 Production Ramp Has Stalled Out (Seeking Alpha)

Tesla, Inc. (NASDAQ: TSLA) and CEO Elon Musk’s surprise offer to take the company private at $420 per share has been the most controversial story on Wall Street in the past week, but another analyst threw shade on Musk’s proposal.

The Analyst

Vertical Group analyst Gordon Johnson on Wednesday reiterated his Sell rating and lowered his price target for Tesla from $93 to $88 per share.

The Thesis

According to Johnson, a decline in Model 3 demand, a drop in investor trust for Musk and the potential for steep losses from Tesla in the third and fourth quarters suggest a deal to go private is extremely unlikely.

Johnson said there are thousands of Model 3s being stored in parking lots in California and that data from Second Measure suggests Model 3 demand has crashed since late June.

Assuming Tesla sells 45,000 Model 3s in the third quarter at 15 percent profit margins, Johnson said the company still won't be able to hit Musk’s target and achieve positive cash flow and profitability for the first time. Johnson’s 45,000-vehicle estimate is based on Inside EVs estimate that 14,250 Model 3s were sold in July.

Johnson also said Musk’s plan to take Tesla private is reminiscent of Lehman Brothers exploring a go-private deal back in 2008. At the time, Korea Development Bank confirmed it was in talks with Lehman Brothers, but the company ultimately passed on the opportunity after taking a closer look at Lehman’s financials.

“We believe similar to KDB’s experience w/ Lehman, once any potential buyer gets into TSLA’s books, the prospect of a $40bn-$50bn investment will evaporate,” Johnson said.

Price Action

After Wednesday’s 2.5-percent decline, Tesla's stock is now down more than 8 percent in the past week and is trading below the level it was when Musk first tweeted about going private. The stock was set to close around the $338.67 area.

Related Links:

Musk Name-Drops Advisors, Tesla Forms Committee To Evaluate Potential Go-Private Deal

Could SpaceX Help Finance A Tesla Go-Private Deal? Morgan Stanley Weighs In

Latest Ratings for TSLA

Oct 2018MacquarieInitiates Coverage OnOutperform
Oct 2018CitigroupMaintainsSellSell
Oct 2018CitigroupMaintainsSellSell

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

Posted-In: Elon Musk Gordon Johnson Model 3 Vertical GroupAnalyst Color Price Target Top Stories Analyst Ratings Best of Benzinga


Related Articles (TSLA)

View Comments and Join the Discussion!
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

RBC Capital Markets Upgrades Bemis Co. On Amcor's $6.8B Bid

Tellurian Demonstrates A List Of Catalysts, Baird Says