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The Ratings Game

Tesla’s ‘huge’ valuation is hard to justify, analysts say

‘The longer questions around execution and growth persist, the more difficult the valuation is to defend,’ Evercore says

Tesla Inc. stock trades at a “huge” valuation premium compared with auto makers,’ but analysts say that inflated worth is getting harder to defend.

Analysts at Evercore ISI on Wednesday lowered their price target on Tesla stock to $200 from $240, a 13% downside over Wednesday’s prices.

Tesla’s TSLA+1.95% enterprise value hovers around $53 billion, which compares with Volkswagen AG’s XE:VOW+1.38% $36 billion and BMW AG’s XE:BMW-0.52% $15 billion, the analysts said.

Read more: Tesla should stick to selling cars and not insurance, RBC says

“The only thing that can justify such valuations is supernatural growth and best in class execution. Both are in question right now,” the analysts said.

“Tesla is a car company. It needs and burns cash like a car company. The longer questions around execution and growth persist, the more difficult the valuation is to defend,” said the analysts, led by Arndt Ellinghorst.

Related: Tesla stock closes at lowest in more than two years

Evercore modeled for 2019 deliveries of around 343,000 vehicles, compared with their prior estimate of 368,000 vehicles and consensus of around 364,000 vehicles. Tesla has guided for deliveries between 360,000 and 400,000 for the year.

“We are relatively sanguine around near-term demand for Model 3, but given continued and persistent delays around battery production, (Tesla) will have to prove their ability to dramatically scale production across multiple models to reach their lofty aspirations (and Q2 guidance).

they said.

See also: Tesla misses first-quarter earnings estimates, but Wall Street focuses on hopes of profit

Moreover, the analysts said they expect Model 3 sales volumes to peak in 2020 after three years in the market and with potential “cannibalization” from the Model Y, the subcompact SUV Tesla plans to launch in 2021.

Tesla shares have lost 21% in the past 12 months, and 31% so far this year. That contrasts with gains of more than 5% and 14% for the S&P 500 index SPX+0.3% in the same time periods.

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