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Tesla Motors Inc (TSLA) Investors Should Be “Really Cautious”: UBS’s Colin Langan

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UBS analyst Colin Langan continues to downplay Tesla due to over spending and possible market saturation

Despite being down 3.3% year-to-date (YTD), Tesla Motors Inc (NASDAQ:TSLA) stock has recovered roughly 21% in the last 30 days and 25% over the last 12-months. The Street has been electrifying as the Model X woes diminish, full-year targets appear reachable, and Model 3 unveiling nears.

Tackling major issues in recent months, the electric vehicle (EV) maker has got the Street back on its side with two key upgrades earlier this month. However, there are few Street analysts who are dubious over the still young, high-tech car manufacturer.

UBS analyst, Colin Lagan, appeared on CNBC’s “Closing Bell” on Monday, urging that Tesla’s unveiling $35,000 compact sedan will fail to wipe out the company’s existing issues. He believes that there are several reasons for investors to be “really cautious” over Tesla shares.

Mr. Langan rates Tesla as a Sell and expects the stock price to plummet roughly 48% to $120 over the next 12-months. The stock closed the market 1.10% higher at $230.26. He thinks that possible market saturation and massive capital spending will negatively effect the shares of the loss-making carmaker.

Tesla plans to spend $1.5 billion in 2016 on Gigafactory cell production, Model 3 production machinery installation, stores/service centers, and global Supercharger network. Since EVs account for less than 1% of overall global new-vehicle sales, Mr. Lagan’s anticipation of market saturation seems dubious. Nevertheless, the Tesla bear did admit that Tesla will continue to expand rapidly in high-end luxury space.

While UBS expects Tesla to face hard time in lower-end market, Stifel’s James Albertine and Global Equities Research’s Trip Chowdhry believes the company will prosper in both the segments. Mr. Albertine, who has assigned a Buy rating with $325 price target, feels that the Model 3 production volume will assist the company in maintaining growth. With an Overweight rating and $385 price target, Mr. Chowdhry expects the company to do wonders with Model 3 and achieve Q1 and FY16 delivery guidance comfortably.

Tesla has guided 16,000 deliveries for this quarter and 80,000-90,000 deliveries for the full-year. The company will unveil its more affordable EV day after tomorrow at its Design Studio in Hawthorne, California. Model 3 reservations, which are expected to surpass 100,000 by April Fools’ Day, will be opened in Tesla stores globally at 10 AM local time and on website at 8:30 PM on the same day.

 

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