Tesla Inc.’s (TSLA) shares were down 4.2% in afternoon trade following a downgrade from RBC Capital Markets and production changes for some of its models. RBC analyst Joseph Spak downgraded the stock to underperform, which is the equivalent of sell, and cut his price target to $245 from $290.
Spak said in a note that the growth expectations are too high to justify current levels, let alone add to positions. While Spak believes that Tesla has long-term growth potential, he indicated that the current valuation considers lofty expectations and that a third of the current stock price is an “Elon premium.”
The analysts at RBC have pointed out that Tesla has been promising high levels of growth and innovation but the company has delivered only a fraction of the promised units and is barely making profits. They believe the company faces the challenge of delivering high volume at high ASPs/margins and has to do something about it soon.
Last Friday, Tesla said it was planning to lay off over 3,000 employees in order to cut costs. CEO Elon Musk said the company was looking to offer its Model 3 sedan at more affordable prices for its customers. Tesla has not yet been able to provide the Model 3 at its promised price of $35,000.
Musk also hinted that the company’s fourth-quarter profit would be slightly lower than third quarter levels. Tesla is set to report fourth-quarter results on January 30. The announcement raised concerns about the company’s ability to sustain itself.
Tesla has also reduced its production hours for its Model X crossovers and Model S sedans, according to a report by Bloomberg. These changes come after the company decided to stop selling the cheaper versions of these models and are part of the company’s efforts to improve efficiencies in its production lines.
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