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Tesla analysts warn on demand, profits as quarter nears end

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The analyst said the second quarter may have been a better environment for both demand and deliveries, "but to a level that is likely not sustainable."

[NEW YORK] The concerns around the demand for Tesla's cars are resurfacing as the second quarter nears a close, with Goldman Sachs analyst David Tamberrino saying volume estimates for the second half of the year and beyond appear to be high, considering there are now fewer "levers to pull to stoke demand going forward."

The analyst said the second quarter may have been a better environment for both demand and deliveries, "but to a level that is likely not sustainable."

Tamberrino said he expected the shares to be on a "downward path" as it became clearer that demand for the company's current products were below expectations. The analyst maintained his sell rating on the stock, and lowered the price target to US$158 from US$200.

"Tesla's increasingly important international rollout takes the focus off the US market, which is taking a demand pause at best or is electric-vehicle saturated at worst. This global push will deliver expansion but at great expense to margin, given the company is essentially starting over as it builds a sales, service and distribution network in China and Europe," Kevin Tynan, Bloomberg intelligence senior global autos analyst said.

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Tesla expects to deliver 90,000 to 100,000 cars in the second quarter, and chief executive officer Elon Musk said at the company's annual meeting earlier this month that sales could hit record levels for this quarter. The worries about demand have dominated the investor sentiment on Tesla this year, and the shares have fallen nearly 34 per cent so far in 2019.

RBC Capital Markets analyst Joseph Spak said the deliveries for the second quarter "may come in towards the low-end of guidance," which is better than what was initially feared. However, as Tesla tries to bring the focus back to delivery growth in order to quell demand fears, the carmaker could be "sacrificing profitability to focus on unit growth," Mr Spak wrote in a note to clients.

RBC now forecasts second-quarter deliveries of 88,900 units, up from its prior view of 87,600 units. Mr Spak has the equivalent of a sell rating on Tesla and a price target of US$190.

Tesla shares were down as much as 2.8 per cent in early US trading on Thursday.

 

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