Oh No, He Didn’t: Tesla Gets a Stock Downgrade

Tesla Headquater

Is Tesla (NASDAQ:TSLA) stock poised to take a tumble? That’s what one Wall Street analyst is warning against, and although the stock downgrade is relatively harmless, it reflects a noticeable change from the confidence analysts have shown on an extended pattern of sharing.

According to The Wall Street Journal, R.W. Baird’s Ben Kallo downgraded his rating on the electric car maker from outperform to neutral on Wednesday morning, voicing concern about Tesla’s short-term prospects.

Kallo recognizes that Tesla’s stock has risen more than sixfold over the past 12 months, but he believes the stock’s appreciation can be attributed to the company’s “flawless execution,” which, if interrupted, could pose significant stock price risk.

The analyst thus maintained his $187 price target for Tesla but warned investors on Wednesday via the Journal: ”We attribute the rise to the successful introduction of the Model S, breakthrough battery technology, and establishment of a cutting-edge brand. However, Tesla has several significant milestones over the next 18 months including continued production ramp and the introduction of the Model X. We believe solid execution on both of these fronts is already priced into the stock, and any hiccups in execution present stock price risk in the near to intermediate term.”

Kallo came into 2013 with a $35 price target on Tesla, and he isn’t the only analyst who has been pleasantly surprised with how well Tesla has performed thus far. The U.S. automaker only recently posted its first profitable quarter this summer, after 10 years, and its stock rally following the impressive performance of its Model S sedan and other breakthrough achievements has led many to erect significant new goals for the electric car giant in 2013′s remaining months.

But although Tesla has succeeded in proving many analysts wrong, speculation is starting to swirl as to whether the Palo Alto, California-based company can really sustain that outlandish success.

The Wall Street Journal highlights that the sentiment surrounding the stock is starting to take a negative turn, and now, only six of the 15 analysts that cover Tesla have buy-equivalent ratings on the stock. That figure was higher earlier in the summer.

It also doesn’t help matters that Jalopnik published a piece this week on a Model S sedan that caught fire on Washington State Route 167. A video of the vehicle on fire has ripped through the Internet, and with some sources claiming the problem could be attributed to the Model S’s battery, the video could have disastrous effects.

Tesla responded quickly to the video and issued a statement on Wednesday that it believes will alleviate any consumer concern. Business Insider highlights the U.S. automaker’s assertion: “Yesterday, a Model S collided with a large metallic object in the middle of the road, causing significant damage to the vehicle. The car’s alert system signaled a problem and instructed the driver to pull over safely, which he did.

“No one was injured, and the sole occupant had sufficient time to exit the vehicle safely and call the authorities. Subsequently, a fire caused by the substantial damage sustained during the collision was contained to the front of the vehicle thanks to the design and construction of the vehicle and battery pack. All indications are that the fire never entered the interior cabin of the car. It was extinguished on-site by the fire department.”

It is still unclear how consumers, investors, and analysts will react to the new Tesla developments, but luckily for the automaker, CEO Elon Musk thrives on skepticism and probably would like nothing more than to prove the doubters wrong. Analysts recognize this and are conspicuously cautious about underestimating what Musk and his company have to offer, but for now, Kallo is maintaining his neutral rating on the stock until he can get a better grip on what Tesla has in store.

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