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Why Argus Downgraded Tesla Motors to ‘Hold’

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Jun. 29 2016, Published 4:39 p.m. ET

Price movement of Tesla Motors

Tesla Motors (TSLA) has a market cap of $29.4 billion. It rose 1.6% to close at $201.79 per share on June 28. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -8.1%, -9.5%, and -15.9%, respectively.

TSLA is trading 6.7% below its 20-day moving average, 9.5% below its 50-day moving average, and 8.1% below its 200-day moving average.

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Related ETF and peers

The iShares Russell Top 200 Growth ETF (IWY) invests 0.32% of its holdings in Tesla Motors. The ETF tracks an index of US large-cap growth stocks selected from 200 of the largest US companies by market cap. The YTD price movement of IWY was -1.9% on June 28, 2016.

The market caps of Tesla Motors’ competitors are as follows:

  • Ford Motor Company (F) — $49.2 billion
  • Honda Motor Company (HMC) — $45.5 billion
  • General Motors (GM) — $42.7 billion

Tesla Motors’ rating

Argus has downgraded Tesla Motors’ rating to “hold” from “buy” due to its acquisition of SolarCity for $2.8 billion. As per Argus, “The bid comes at an ‘inappropriate time’ for Tesla. Tesla is struggling to become profitable and the deal would likely lengthen the time it would take for the company to do so.”

TheStreet Ratings rated Tesla Motors as a “sell” with a score of D+.

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Tesla Motors’ performance in fiscal 1Q16

Tesla Motors reported total fiscal 1Q16 revenues of $1.2 billion, a rise of 22.0% compared to total revenues of $939.9 million in fiscal 1Q15. The company’s cost of revenues as a percentage of total revenues rose 8.3% in fiscal 1Q16 compared to fiscal 1Q15.

Its net income and EPS (earnings per share) fell to -$282.3 million and -$2.13, respectively, in fiscal 1Q16, from -$154.2 million and -$1.22, respectively, in fiscal 1Q15. In fiscal 1Q16, the company reported non-GAAP (generally accepted accounting principles) EPS of -$0.57 compared to -$0.36 in fiscal 1Q15.

Tesla Motors’ cash and cash equivalents and inventory rose 20.5% and 1.9%, respectively, in fiscal 1Q16 compared to fiscal 4Q15. Its debt-to-equity ratio rose to 8.4x in fiscal 1Q16 compared to 6.4x in fiscal 4Q15.

Projections

Tesla Motors has made the following projections.

  • In fiscal 2Q16, the company expects to produce and deliver about 20,000 vehicles.
  • It expects to deliver ~17,000 vehicles in 2Q16 due to more vehicles in transit for its customers in Europe and Asia at the end of fiscal 1Q16.
  • It’s planning to exit 2Q16 at a steady production rate of 2,000 vehicles per week.
  • The company is confident that it will deliver 80,000–90,000 new Model S and Model X vehicles in 2016.
  • It expects its Model S non-GAAP gross margin to reach 30% and its Model X non-GAAP gross margin to be ~25% by the end of 2016.

In the next part of this series, we’ll take a look at Nike.

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