Tesla Needs Low-Cost Model 3 Before Demand Improves, Cowen Says

(Bloomberg) -- Demand for Tesla Inc’s Model 3 sedan is expected to remain soft in the U.S. until the release of the lower-priced $35,000 model next quarter, Cowen analyst Jeffrey Osborne said.

State government and third-party data suggest demand in the first quarter will be weaker than Cowen’s prior expectations, even with what Osborne calls the “typical end of quarter frantic push.” He cut delivery estimates for the Model 3 to 47,500 from 55,000 and for the Model S/X to 18,000 from 21,500. The analyst said the biggest risk to the revised estimates may be China, where delivery expectations and customs clearance are less transparent.

“We have also updated our model to reflect the company’s price changes throughout the lineup and the likely negative impact to margins,” Osborne said in a note to clients Friday. He has an underperform rating on the stock and cut his price target to $180 from $200, implying around 34 percent downside risk from the current share price.

Tesla typically reports quarterly delivery and production data within a few days of the end of the period. Osborne said that a high vehicle-in-transit number will likely be an indication of delivery logistic challenges in Europe and China, similar to what was seen in the U.S. market last year. He also estimated that production can exceed deliveries by 10,000 to 15,000 vehicles, which “will be a drain on cash in first quarter.”

The carmaker’s shares fell 0.7 percent to $272.14 at 9:30 a.m. in New York trading. The stock has fallen 18 percent so far this year.

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Catherine Larkin

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