Shares of electric car maker Tesla, Inc. (TSLA) fell by as much as 5% this morning after investment bank The Goldman Sachs Group, Inc. (GS) downgraded the stock to "Sell" from "Neutral," citing production delays and execution problems related to the Model 3 – the company's first mass-market electric car. As of this writing, Tesla shares were trading at $246.09, down 4.3% from the start of the day. (See also: These Are Tesla's 3 Biggest Bets for Next Year.)
The research firm reiterated its bullish outlook for the electric car maker but said that it foresaw short-term problems related to Tesla's outlook. "While we believe Tesla currently has a lead relative to OEM peers with respect to vehicle technology adoption, electric vehicle architecture, and (potentially) battery scale, our concerns are more near-term oriented with respect to operational execution on the Model 3 launch, an unproven solar business, and cash needs," Goldman Sachs analyst David Tamberrino wrote in his note. (See also: More Model 3 Details Emerge on Tesla Earnings Call.)
Tamberrino cut his price target on Tesla shares to $185 from $190. According to the analyst, the delay in launching the Model 3 will negatively affect Tesla's manufacturing volumes. In addition to this, increased expenditures relating to the ramp-up of its manufacturing volume will force the company to burn through its cash. Both factors are expected to weigh on Tesla's shares.
In its latest earnings call, Tesla said its plans to begin Model 3 production on July 1 were on track. CEO Elon Musk said more automation on the production line and Tesla's Gigafactory, which manufactures lithium ion batteries, would make Model 3 production simpler as compared with previous models. The Palo Alto, Calif.-based company returned to negative cash flow and losses a quarter after it reported profits driven by the sale of renewable energy credits. In its latest earnings report, Tesla beat analyst estimates for revenue, but the company's earnings fell short due to increased expenses related to its acquisition of solar panel maker SolarCity Corporation and declining operating margins. (See also: Tesla Rises in After-Hours After Mixed Earnings Report.)