Tesla Target Price Cut by JP Morgan Analyst, Shares Fall

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Tesla Motors, Inc.’s (TSLA) shares fell 3.6% to $250.03 on Sep 22, after a JPMorgan Chase & Co. (JPM) analyst gave expectations of a lesser number of car deliveries by the company over the next few years than what it targets. The analyst also set a target price of $190 for Dec 2015, which is significantly lower than the current share price. The new target price is in sharp contrast to price raises as high as $310 to $400 set by other analysts.

According to the analyst, Tesla might be able to deliver only 18,250 vehicles in the fourth quarter of 2015. This implies a run-rate of 73,000 vehicles, which is significantly lower than the company’s target of an annualized production rate of 100,000 vehicles by 2015 end. Moreover, the analyst believes that even after the construction of the Gigafactory, Tesla will be able to deliver only 303,500 cars by 2020, compared to its projection of 500,000 vehicles per annum.

The analyst raised concerns about long-term demand for Tesla’s cars as well as the impact of volatility in metal prices on the company. However, the analyst also appreciated the elegant design of the vehicles, efficiency of the management team and the company’s competitive advantage courtesy of absence of legacy pensions and other post-employment benefits.

Due to a combination of these factors, the analyst has set the low target price, which dragged Tesla’s share price to its lowest in six weeks. However, even after this fall and the recent weakness in the share price, Tesla is still trading at a 66.2% gain since the beginning of the year.

Currently, Tesla sports a Zacks Rank #1 (Strong Buy). Other auto stocks worth considering include Advance Auto Parts Inc. (AAP) and Fox Factory Holding Corp (FOXF), each carrying a Zacks Rank #2 (Buy).

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