Tesla Shares Fall After Analyst Cuts Rating

Tesla has lost nearly $1 billion since sales of the Roadster began in 2008, and the company is banking on the cheaper Model S to expand its market.

DETROIT (AP) — Shares of upstart electric car maker Tesla Motors Inc. fell Wednesday after a Wunderlich Securities analyst cut his rating and target price for the company's stock.

THE SPARK: In a note to investors on Wednesday, analyst Theodore O'Neill downgraded the Palo Alto, Calif., company to "Sell" from "Buy." He also cut his 12-to-18-month price target on the stock from $49 to $28 per share, and he raised his third-quarter and full-year loss estimates. For the third quarter he expected a loss of 64 cents per share. He raised that to 75 cents on Wednesday. He also raised his full-year loss estimate from $2.60 to $2.71 per share.

THE BIG PICTURE: Tesla, the brainchild of PayPal billionaire and SpaceX founder Elon Musk, now has two all-electric models on the market, the $109,000 Roadster and the new Model S, which starts at $49,900 after a federal tax credit. Tesla has lost nearly $1 billion since sales of the Roadster began in 2008. The company is banking on the cheaper Model S to expand its market. The company began selling stock to the public in June 2010 at an initial price of $17 per share. The Model S went on sale last month, and Tesla said more than 10,000 people have put down a refundable deposit for the sedan.

THE ANALYSIS: O'Neill wrote that Tesla initially said it would produce and sell 1,000 cars in the third quarter of this year, but now the company says it will move half that number. Wall Street estimates, he wrote, are based on 1,000 cars. Tesla wants to make sure the cars are built right and apparently can't make 1,000 vehicles in the quarter, O'Neill wrote. If the company sells 500 fewer cars during the quarter, it will mean $50 million in lost sales at $100,000 per car, the analyst said.

Tesla is sticking with full-year production estimates of 5,000 vehicles, implying that it will build 4,500 in the fourth quarter. "How it gets to this higher volume when it is having issues now makes it a bit of a wait-and-see story," he wrote. O'Neill also added that he believes Tesla is doing everything right from a business perspective and has demonstrated superior car designs.

Tesla said Wednesday that it is focusing on quality while starting production of the Model S, and it still plans to build 5,000 vehicles in 2012. "This plan has not changed and there have been no unexpected challenges or issues," the company said in a statement.

THE SHARES: Tesla shares fell 40 cents to $32.95 in morning trading. The stock has traded as high as $39.95 and as low as $21.50 in the last 52 weeks.

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