Piper Suggests Holding Off On Buying Tesla Shares

While “wholeheartedly” recommending the purchase of Tesla automobiles, Piper Jaffray’s Alexander E. Potter said that he could not recommend buying Tesla Motors Inc (NASDAQ: TSLA) shares. The analyst initiated coverage of the company with a Neutral rating and a price target of $223.

What Could Go Wrong

Tesla’s short interest is more than 30 percent. This is because the company has admitted its production targets are unrealistic. In order to deliver 500,000 cars in 2018, Tesla would have to rush through production, resulting in quality problems and warranty claims, Potter commented.

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Moreover, the company is aiming at vertical integration, while the industry has long moved away from this strategy. Additionally, there is significant dealer opposition to Tesla's direct sales approach, and this could adversely impact sales in the US.

After Tesla begins manufacturing Model 3 at scale, the stock could command a higher multiple than most other auto OEMs. Potter added, however, that catalysts in the coming year are “more likely to be negative than positive.” He added that investors should buy Tesla’s shares if there’s a decline in response to negative headlines.