Tesla shares will open at their lowest level in more than five months. This comes after RBC Capital Markets lowered its 12-month price target on Tesla shares and gave the company an underperform rating.
This rating comes as a result of delivery issues with the Model 3 and a lower customer demand than expected. Analyst Joseph Spak cut the first-quarter delivery forecast from 57,000 to 52,500.
He also lowered the price target 14 points, from $245 to $210, which indicates a 20 percent downside in 2019. He anticipates the company will post an adjusted loss of 64 cents per share, down from a profit of 68 cents per share.
Delivery Issues and Declining Customer Demand
Spak wrote that he expects to see 6,000 sales in China, 21,000 in Europe, and the remainder in North America. China has been the biggest holdup for Tesla so far.
The company was forced to delay deliveries of the Model 3 to Chinese consumers due to customs issues. Customs authorities identified a number of technical issues with the Model 3 cars and postponed the clearance process for further reviews.
Recent price cuts to the Model 3 indicates both lackluster customer demand and lower earning potential. The average selling price for the Model 3 is now $53,600 which is down from $55,500.
Optimism over Future Growth
Last month, CEO Elon Musk caught investors off-guard when he announced that Tesla will begin exclusively selling cars online. He also said customers will have a week to return the cars if they aren’t satisfied with their purchase. However, many customers have complained about the ambiguity of Tesla’s return policy.
Musk said that moving sales online would allow the company to sell the Model 3 at the base model price of $35,000. However, on Sunday Musk took to Twitter to announce a three percent price increase on April 1, saying the current price point wouldn’t allow the company to be profitable.
In premarket trading on Monday, Tesla’s shares fell 2.1 percent following the reduced price target. The company’s stock is already down 20 percent in 2019 alone. However, Spak said he expects Tesla’s growth to be down in 2019 but believes Tesla is priced for growth and that his 2020 forecast will remain the same.