Tesla 'Is Arguably Just Getting Started,' But Needs Better Leadership, Nomura Says In Downgrade

Elon Musk has drawn federal scrutiny and lost multiple subordinates for erratic behavior including apparent on-air pot smoking. Tesla Inc TSLA is forfeiting friends in the process.

The Analyst

Nomura analyst Romit Shah downgraded Tesla from Buy to Neutral and cut the price target from $400 to $300.

The Thesis

Nomura considers Tesla’s brand as valuable as that of Apple Inc. AAPL.

“What Apple taught us is that, once brand recognition is established, consumer behavior can begin to deviate from traditional economics in ways that benefit the company immensely,” Shah said in the Tuesday downgrade note. (See the analyst's track record here.) 

“With the launch of Model 3, we saw that consumers were willing to forego compelling alternatives despite extended wait times and a premium price point. That said, consumers are fickle and we suspect could become scared about buying a Tesla if they believe the company might not be around long-term.”

Given Tesla’s brand exposure, Musk’s behavior — from tweeting insults and smoking pot to taunting shortsellers and making rash announcements — is a liability, the analyst said. In fact, Shah suspects it’s contributed to the loss of “well-respected” executives.

“Notwithstanding improving fundamentals, we believe that Tesla is in need of better leadership (an about face) and are moving to the sidelines until we see what happens with management."

Leadership aside, the analyst maintains faith in Tesla’s trajectory and forecast nearly as many vehicle deliveries in the fourth quarter as the automaker achieved in all of 2017. Nomura expects 2018 revenue to show 84-percent year-over-year growth.

By Shah’s assessment, Tesla is well positioned for “unprecedented” revenue growth, “substantial” profits and unmatched innovation.

“Tesla is arguably just getting started,” the analyst said. “The company will begin shipping Model 3 overseas at the end of the year and in 2019 will introduce a mid-size crossover SUV, which will more than double their addressable market opportunity to 10 million units. As such, we see a clear path to 1 million deliveries or $50-billion-plus in revenue by early next decade.”

Price Action

Tesla shares were trading down 2.1 percent to $279.50 premarket Tuesday.

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Photo courtesy of Tesla.