Barclays Lowers Tesla's Price Target: 'Crossing The Chasm Is Tougher Than It Looks'

In a report published Friday, Barclays analyst Brian A. Johnson lowered his price target for Tesla Motors Inc (NASDAQ: TSLA), from $220 to $200, maintaining an Equal-Weight rating. The specialist said that what sets Barclays apart from the Tesla bulls is its skepticism regarding the company’s ability to become a successful mass-market OEM.

“We argue that there are many challenges ahead for Tesla; upon revisiting our margin and delivery estimates, we were reminded yet again that crossing that chasm is harder than it looks, especially in a new era of low oil prices,” the report said.

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The reduction in the price target is justified by “softer volumes and margins,” Johnson assures. The new target seeks to better reflect “the challenges of Tesla's ramp” in production. However, the Equal-Weight rating is reiterated as the firm continues to expect “trading to be influenced by the flow of near-term datapoints.

The analyst explained the challenges that the ramp faces: "1. Reaching targeted volumes requires a tremendous ramp in production, and there will be no shortage of challenges along the way (as seen in 3Q); 2. Uncertainty around uptake in China and Europe leads us to believe that Tesla has a greater probability of plateauing in the mass-luxury niche."

Consequently, the firm reduced its 2020 delivery estimate to 370,000, versus a prior 426,000 and guidance 500,000 run-rate.

Regarding margins, the analyst warned, “while Tesla has an opportunity to reach eventually double-digit op. margins (i.e. after it is fully ramped), we believe the street may be underappreciating that Tesla's op. margins will be suppressed through at least the end of the decade (i.e. low-mid single digits), as Tesla increases R&D and SG&A investment to support its growth.”