Tesla Inc. is a mess, but JPMorgan Chase & Co. expects its troublesome stock to bounce back next year, at least when compared to other luxury vehicle companies like BMW and Mercedes-Benz.
The firm on Wednesday said the Model 3 could take “tremendous share” in the luxury car market. The predicted stock price rebound comes after a year when the Palo Alto, California-based company lost $1.27 billion and its market value slid $32 billion.
“We see risk of sustained cash burn, a volatile management team, an existing debt load of $5 billion, an equity market that looks tough in 2019, and an industry where (hot) markets tend to last for a year or two,” JPMorgan analyst Ryan Brinkman wrote in a note to clients. “Overall, we believe the price target on TSLA is 8.7x Ebitda (and a relative under-weight on the stock).”
JPMorgan has a price target of $300 a share for Tesla, more than 50 percent below its closing price on Tuesday. The Wall Street Journal last week reported that the bank had prepared a note to clients that stated how Tesla’s market cap was getting dangerously close to an asset’s equity value.
BRINKMAN SAID THE NUMBER OF FANS OF the car industry is dwindling, which “appears to have driven down some of the other valuations in the industry.”
Tesla Chief Executive Officer Elon Musk’s prediction last year that his company would hit 500,000 deliveries in 2018 became, by the end of the year, only 227,000 deliveries. Tesla was about $59 billion short of its target for 2018 shipments, while it has yet to secure its original goal of achieving profitability for the year.
When results are announced in the spring, Tesla could face higher debt levels than the company has previously realized, Brinkman wrote, citing estimates that it would reduce debt by only $1 billion next year. The analyst’s new 2018 guidance for Tesla cars to generate a gross margin of 22 percent to 23 percent are also “unlikely to be realized,” he said.
The Tesla executive team’s ability to “maintain credibility” is questionable, Brinkman wrote. “We believe they need to show some traction in manufacturing in the second half of next year to maintain this credibility,” he wrote.