Barclays Hits the Brakes on Tesla Motors, Inc.: Does This Price Target Cut Make Sense?

Source: Flickr user Maurizio Pesce.

What: Shares of electric vehicle manufacturer Tesla Motors sank more than $3 in Friday's trading session following a price target cut from research firm Barclays .

So what: According to covering analyst Brian Johnson, who kept his firm's rating of Tesla Motors unchanged at "equal weight" (the equivalent of a "hold"), there are "many challenges" ahead for the innovative electric vehicle manufacturer. Specifically, Johnson lists margin expansion and Tesla's ability to ramp up production as one of those challenges. However, he lists a "new era of low oil prices" as being particularly troublesome for Tesla since high gasoline prices are one reason consumers push toward EVs and other fuel-efficient hybrids.

Ultimately, Johnson wound up reducing his firm's EPS estimate in 2020 to $5.55 from $13.54, and lowered Tesla's price target 9% to $200 from $220.

Now what: The real question that needs to be asked here is whether or not this downgrade makes sense.

To ensure I don't hide any biases, I'll admit to being one of the brave (and thus far wrong) souls who's currently short shares of Tesla Motors. A lot of what Johnson had to say with regard to Tesla hits home with me, as I've previously expressed concerns over Tesla's valuation.

Source: Tesla Motors.

Some key points that continue to trouble me are Tesla's inability to stick to its production deadlines (both the model S and the X were delayed from their original launch dates), CEO Elon Musk's recent commentary that Tesla wouldn't be profitable based on generally accepted accounting principles until 2020, and the company's plans to open a Gigafactory to internalize the production of its EV batteries. Tesla has next to no knowledge of the battery production process, so there's no guarantee this foray will be a success.

On the other hand, I have to give Musk credit for introducing the first new auto brand in more than 50 years. Additionally, the dynamics of the oil market may not have as much bearing on the sale of the Model S as you might initially think. With the Model S regularly running $70,000 or higher, the typical buyer isn't purchasing it to save $80 in fuel costs each month. Also, the infrastructure supporting EVs is growing, making owning an EV a smarter and eco-friendly choice.

But, as I clearly mentioned above, I'm a short-seller of this stock. Its valuation is terrifying and mystifying to me considering that most auto giants can produce in a few days what Tesla is forecasting it will build in the entirety of 2015. I also suspect it'll face some tough competition from the likes of BMW and General Motors toward the end of the decade. Long story short, I agree with Barclays' price target cut on Tesla.

1 great stock to buy for 2015 and beyond

2015 is shaping up to be another great year for stocks. But if you want to make sure that 2015 is your best investing year ever, you need to know where to start. That's why The Motley Fool's chief investment officer just published a brand-new research report that reveals his top stock for the year ahead. To get the full story on this year's stock -- completely free -- simply click here .

The article Barclays Hits the Brakes on Tesla Motors, Inc.: Does This Price Target Cut Make Sense? originally appeared on

Sean Williams is short shares of Tesla Motors, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of, and recommends Tesla Motors. It also recommends General Motors and BMW. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More