According to the Wall Street investment bank Goldman Sachs, the value of electric car maker Tesla is half of what its founder and CEO Elon Musk tweeted it to be at $420 a share when he recently famously tweeted his intention to take the company private.
The investment bank issued a price target of tesla chares at $210 a share and reinstating a “sell” rating earlier in the week indicating its view of the company.
The major reason for the low valuation of the company include the “intensifying” rivalry in the electric vehicle industry which can dent its early bird advantage and the balances sheet of the company that speaks of huge debts.
On August 7, Musk had tweeted that he had secured finding for taking Tesla private at $420 a share. This claim has reportedly resulted in an investigation by the SEC. The privatization plan of the company however was later retracted by Musk because of pressure from activist investors. The tweet from Musk saw the share price of the company shooting up to touch $389.61 on August 7. But there has been a drop of about a quarter in the value of the shares since then. And according to Goldman Sachs, within the next six months, the share value of Tesla will fall by another 30 per cent.
“We remain bearish” on Tesla’s ability to execute, ramp up vehicle production and generate free cash flow, Goldman Sachs analysts led by David Tamberrino wrote to clients.
The estimation by the bank did not incorporate the concerns ove4r Musk’s erratic behavior. The basis of the estimation was instead based on the slew of electric cars that are slated to be soon launched by a number of rivals of the company – from Ford and Jaguar to Porsche and Nissan.
There would be a “large crescendo” of competition for Tesla in the near future, predicts Goldman Sachs even though its Model Y is not expected to be launched any time before 2020.
As an example, the bank identified the first all-electric SUV unveiling from Daimler’s Mercedes-Benz done this week which is the first such electric model by the German car maker. Further Tesla’s dominance is also threatened by proposed electric cars from other rivals in the luxury car segment such as BMW and Audi,
Another issue that Tesla is soon to face is the rise in the price of its cars. By the end of the year, a government incentive in the form of a tax credit for buyers of electric vehicles would come to an end. Under the regulations of the United States, there is a gradual pashing out of full tax credit for a company as it sells its 200,000th electric car. That number had been reached by the company in July this year.
“We believe the higher price point buyers for the Model 3 could be exhausted for Tesla by year-end,” Goldman Sachs wrote.
(Adapted from Money.CNN.com)