Nomura said it was sticking with its Buy call on Tesla, saying the selloff was based on concerns that were “largely without merit.”
The stock ended Thursday up 3.24 percent at US$266.13, erasing early session losses, but that’s down more than 25 percent from the closing peak of US$357.42 on February 26.
“The share performance, in our opinion, is attributable to a reduction in large-cap tech multiples (AMZN, FB, AAPL, NVDA), concerns over passenger safety (Uber self-driving accident, Model X crash) leading to increased government regulation, perceived accounting impropriety, weak Model 3 production and insolvency risk (Moody’s downgrade),” it said in a note last week. “These issues are from our perspective largely superficial and without merit.”
But Nomura added that it was cutting its target price to US$420 from US$500, as it cut its target multiple amid declines in other large-cap tech multiples, lower estimates on worse-than-expected Model 3 production constraints and an expected US$3 billion capital raising at $250 a share, which would be 7 percent dilutive to the current share count.
“We expect Model 3 results to miss production guidance, but that Tesla will show meaningful progress in ramping deliveries and peak production in the first quarter,” it said, adding it expected the sustained production run rate to approach 4,000 units a week by the end of the third quarter.
It cut its Model 3 delivery estimates to 153,054 from 194,948 for 2018, which lowered the bank’s revenue estimate to US$20.8 billion from US$23.8 billion for the full year.
Nomura also noted that the Model 3 response has been “overwhelmingly positive,” even from traditionally ICE (internal combustion engine) friendly media.
“At the same time, we believe the company faces a largely inferior competitive field that is still very conflicted about the shift to electric vehicles,” it said. “We believe that competition remains years behind, and in some cases appears to be moving backwards.”
It noted many traditional automakers have been lobbying to reduce emissions standards and to rollback electric-vehicle (EV) adoption requirements.
“This has left these OEMs playing catch up to early EV movers such as Tesla, in our view,” it said. ” This complacency towards alternative propulsion technologies only extends Tesla’s window of opportunity and diminishes the impact of production issues.”