Goldman Sachs pumps the brakes on Tesla, calls brand a ‘high cash burn business’

By Andrew Hard Published October 6, 2016

goldman sachs downgrades tesla stock model 3 delays feat — Image used with permission by copyright holder

If nothing else, Tesla Motors is an extremely ambitious car company. The brand’s upcoming Model 3 had one of the largest one-week product launches in history, its Gigafactory battery plant is set to be one of the largest buildings on the planet, and more recently, Tesla announced its plan to acquire SolarCity. But while some commend Elon Musk and Co. for their aggressive approach, others theorize that the automaker is perhaps biting off a bit more than it can chew.

One such critic is Goldman Sachs, which recently downgraded Tesla’s stock from “Buy” to “Neutral” and slashed its six-month price target from $240 to $185. Why? The firm cited potential Model 3 delays as a major threat to share prices, while also labeling the brand a “high cash burn business.”

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“We now see incremental risk to the business related to management’s deployment of capital for [mergers and acquisitions], and further believe that any delay in the company’s timeline to launch its new Model 3 will be detrimental to shares,” said Goldman Sachs analyst Patrick Archambault, courtesy of Electrek.

In many cases, this type of analysis would result in a worse rating from Goldman Sachs, but the firm admits that it’s not all bad news on the Tesla front. For one, the manufacturer’s car deliveries shot up 70 percent to 24,500 units in the third quarter of 2016, and Archambault predicts a positive earnings-per-share result for that time frame because of it.

“With solid 3Q16 deliveries and the potential downward catalyst of a missed Model 3 launch timeline out in 2H17, we prefer to be Neutral on shares,”Archambault summarized.

As a result of the news, Tesla’s share price dropped 3.4 percent to $201.28. For more on the controversial car brand and the upcoming Model 3, click through to our news and rumor roundup.

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