You think Tesla’s second quarter was bad? Goldman Sachs sees a ‘step down’ next quarter and a 40% plunge in the stock

Reuters

Tesla’s Q2 earnings sent the stock 12% lower in premarket trading, which would wipe $5.6 billion off the share price.
The pain won’t end there. Goldman Sachs analysts’ 12-month price target implies a 40% decline in the shares.
"The sustainable demand for TSLA products may not be as high as some investors initially anticipated."
View Markets Insider for more stories.

It was a shocking second quarter for Tesla, and Goldman Sachs says the pain will continue.

Analysts at the bank painted a bleak picture for the full year. Tesla’s second-quarter loss was wider than expected, coming in at -$1.12 per share versus a -$0.31 cent estimate. For the full year, Goldman sees a loss of $4.94 per share.

The biggest problem, Goldman’s analysts say, is the company’s thinning margins, which were "well below expectations." Automotive gross margins were 18.9% compared to the consensus of 20.5%, the bank said.

"This will weigh on shares as investors question the company’s ability to maintain vehicle profitability while increasing demand — which is still an area for debate," the analysts wrote. They maintained their "sell" rating and $158 12-month price target, implying a drop of about 40% from the closing price on Wednesday.

Goldman added that despite Tesla saying it would deliver between 360,000 and 400,000 vehicles in 2019, "there will be a sequential step-down into the third quarter 2019 post another reduction in the Federal Tax Credit and some likely pull forward demand."

The Federal Tax credit is a system to reward buyers of electric vehicles. Federal credit starts at $7,500, but trends lower depending on how many cars companies sell. For Teslas, the credit is less, because the company has sold more than 200,000 vehicles, and so now stands at $1,875.

"This is corroborated by the continued decline in customer deposits on the balance sheet — even if this runs counter to the company’s communication on order trends," Goldman said.

"We have continued to see customer deposits trend down despite positive commentary on order rates from the company," the analysts wrote. "We continue to believe this may indicate that the sustainable demand for TSLA products may not be as high as some investors initially anticipated."

"Most investors questioned what the margin profile could be given a view that more standard versions and/or lower price variants may be in higher demand," the bank wrote. "We expect downward pressure on TSLA shares resulting from the top- and bottom-line miss, as well as softer gross margins achieved in the quarter."

NOW WATCH: Nxivm leader Keith Raniere has been convicted. Here’s what happened inside his sex-slave ring that recruited actresses and two billionaire heiresses.