Is Elon Musk's carmaker a buy or a sell?

By Lucinda Shen
October 3, 2017

Tesla fell dramatically short of its own third quarter production estimates for its highly anticipated Model 3 car, delivering just 260 vehicles compared to the 1,600 that CEO Elon Musk predicted.

Yet despite the wide divide between Musk’s expectations and Tesla’s reality, two of Wall Street’s biggest banking firms still can’t agree whether Tesla is a wise investment.

Goldman Sachs views the Model 3 production shortfall as yet another reason to be skeptical of Tesla. Goldman predicts the firm will shed $20.3 billion in market capitalization over the next six months, or roughly 35% of its current value, because the company is unlikely to meet production targets. Still, Goldman lifted its six-month price target on Tesla to $210 from $200 in part thanks to better delivery figures on its other vehicles. Goldman has the equivalent of a “Sell” rating on the stock.

“We continue to maintain our more cautious Model 3 [production growth estimate], which is far below company targets,” wrote Goldman Sachs analyst David Tamberrino in a Tuesday report on Tesla.

Morgan Stanley, on the other hand, isn’t as concerned about Tesla’s missed Model 3 delivery target. “Most auto launches have hiccups, and Tesla is not exception,” wrote Morgan Stanley analyst Adam Jonas in a note of his own. Morgan Stanley has the equivalent of a “Hold” rating on the stock.

Jonas argued that, because the first Model 3 vehicles showed few of the problems that often plague early-production cars, there is reason for optimism about the vehicle’s future. “In our opinion, quality and attractiveness of early production is far more important than the quantity delivered — at least for now,” he wrote.

The dueling notes come after Tesla released updates on the third quarter delivery figures late Monday. While the company reported weak Model 3 deliveries, its deliveries of the Model X SUVs and Model S sedans were far rosier. In total, deliveries for the quarter rose 4.5% to 26,150.

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