Tesla's True Value ‘Closer to $200’ Says Needham

Tesla Inc. (TSLA) shares, on a rollercoaster ride this year thanks to controversial publicity surrounding its high profile Chief Executive Officer and founder Elon Musk, could lose over one-third of their value, according to one Street bear.

Needham analyst Rajvindra Gill downgraded shares of the Palo Alto, California-based company to sell from hold on Monday, indicating that the stock's true valuation is "closer to $200." This price target implies an 59% downside from Tuesday afternoon, as shares trade up 3.1% at $318.09. Tesla stock has returned 2.2% year-to-date (YTD), underperforming the S&P 500's 7.4% increase over the same period due to a handful of concerns including delayed and stressed production of its first mass-market vehicle, its high burn rate and the antagonistic and often impulsive nature of its leader. 

 Precarious Balance Sheet Weighs on Shares: Bear

Earlier this month, Musk took to his famous Twitter account to float the idea of taking Tesla private, indicating that funding had been secured. Shares plummeted on news that the tweet was never approved by Tesla's board, while some bears doubted that anyone had lined up for such a deal. Gill spoke in an interview with Bloomberg indicating that even if a private deal took place, "assuming that all equity investors would turn into private investors is a big assumption." He added that a price target of $420 is an "absurd valuation," citing Tesla's "burning free cash flow (FCF)" and "precarious balance sheet" with current liabilities close to $9.1 billion and current assets of $6.7 billion. He expects the firm to burn through about $2 billion in FCF by next year. 

Needham warned that the base model Model 3, long-promised at $35,00, "is not going to be in production any time soon." As a result, the analyst indicated that true demand for Tesla's first mass-market vehicle is unknown. 

Meanwhile, Musk says Tesla is set to be profitable by Q3 and onward, which wouldn't make much sense for the firm to go public, noted Gill. The analyst indicated on Bloomberg that Musk, who has ruffled feathers of many investors and analysts, may be too focused on burning the short sellers, given one third of Tesla's float is short. (See also: Musk: Tesla Could Produce a $25K Car in 3 Years.)

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