Tesla Shares Plunge on Price Target Downgrade, BMW Electric Car Announcement

Joe Goldman  |

Tesla Motors (TSLA) shares plunged on Tuesday by their largest single-session percentage since January 2012, as investors reacted negatively to a price target cut and the announcement of BMW’s new electric car.

Patrick Archambault of Goldman Sachs ($GS), who reiterated a “neutral” rating on the stock, laid out three potential scenarios for Tesla: one bullish (200,000 vehicles), one neutral (150,000 vehicles), and one bearish (105,000), according to ValueWalk. Based on 14-15 percent margins, Archambault averaged the three scenarios out and came up with an $84 price target, well below where shares are currently trading.

Archambault also argued that automakers historically underperform the S&P 500 by 26 percent during periods of rising interest rates. Amid growing concerns that the Federal Reserve will stop its bond-buying program and prompt higher interest rates, he believes that the auto industry is close to reaching a peak.

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Yet, this historical statistic may be less relevant to Tesla than it is to more cyclical names like Ford (F) and General Motors (GM) , as the company is no ordinary carmaker. Its flagship Model S is miles ahead of the pack, providing industry-leading battery range, engine performance, and interior technology. With explosive sales growth and an unparalleled “cool” factor, Tesla has quickly become a household name worldwide.

However, Tesla’s reign as the king of electric cars could soon be challenged. BMW announced the fully electric i3 on Tuesday, which is set for European release in November and U.S. release in 2014. The car can travel up to 186 miles on a single charge and, of course, boasts BMW’s benchmark interior comfort. Most threatening of all, the i3 will sell for under $40,000, while the Model S starts at $62,400 after a $7,500 tax credit.

“We are at the dawn of a new era,” said Ian Robertson, BMW’s head of sales.

Of course, the proliferation of electric cars is still in its baby stages. Plug-ins possess a minuscule share of the auto market. With so much growth potential for electric carmakers, there is surely room for more than one player.

Still, investors reacted understandably bearish to the one-two punch of negative news. Tesla shares plunged $20 per share to $107.52, a one-day drop of over 15 percent. Shares are still up 200 percent year-over-year.

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