Tags: Elon Musk | John Murphy | Tesla | SolarCity

BofA: Tesla Faces Risks to 'Long-Term' Viability on SolarCity Takeover

BofA: Tesla Faces Risks to 'Long-Term' Viability on SolarCity Takeover
Elon Musk, founder of Tesla (Dreamstime)

By    |   Tuesday, 25 April 2017 12:34 PM

Bank of America Merrill Lynch on Tuesday cut its 12-month price forecast on Tesla shares in half, saying the electric car maker's "long-term viability" was endangered after last year’s takeover of SolarCity Corp.

Tesla’s stock will fall 46 percent to $165 a share by next year, according to forecasts by John Murphy, the lead U.S. auto analyst at BofA.

"We believe the SolarCity acquisition introduces material risks to the longer-term viability of TSLA, while the recent capital raise only serves to further dilute potential shareholder value," research analyst John Murphy said in a note to investors obtained by CNBC. He has an underperform rating on the stock.

Tesla has defied naysayers and short sellers by rising 75 percent since early November to about $312 a share by April 25. The Palo Alto, Calif.-based company founded by billionaire Elon Musk plans to start making its first lower-priced, mass-market electric car this year.

Murphy cut his 2017 earnings estimate on Tesla from a 25 cent loss per share to a $2 loss. Looking to 2018, he lowered estimates from $2.05 a share to $1.65 but set 2019 estimates "optimistically" at $4.55 a share.

Tesla shareholders voted in November to approve the electric car maker's $2.6 billion acquisition of SolarCity, a solar power company co-founded in 2006 by Musk’s cousins, Peter and Lyndon Rive. SolarCity’s sales and headcount grew, but the company burned through cash.

CNBC listed Murphy's other concerns about Tesla and SolarCity:

  • The solar company acquisition should "exacerbate TSLA's serious cash burn problem, at least in the near-term." Similarly, Murphy anticipates "the SolarCity business burning cash through our forecast period."
  • The combined company likely depends heavily on the automotive business: 84 percent of total revenue and 97 percent of gross profit, he estimates.
  • The "Model S may be experiencing a typical spike and burnout" and "without an all-new or next-generation Model S, we think TSLA could see Model S volumes fade, even if prices are lowered."
  • "Shareholders seem to come second" as Tesla pursues its mission of vertical energy integration because the company has raised capital every year since 2008, Murphy said.
  • Those shareholders may eventually lose confidence in the stock: "While we recognize that TSLA is a growing top-line business, we think it is unlikely that investors would continue to supply the company with incremental low cost capital in perpetuity if investments fail to generate return."

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Bank of America Merrill Lynch on Tuesday cut its 12-month price forecast on Tesla shares in half, saying the electric car maker's "long-term viability" was endangered after last year's takeover of SolarCity Corp.
Elon Musk, John Murphy, Tesla, SolarCity
397
2017-34-25
Tuesday, 25 April 2017 12:34 PM
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