Tesla shares slide after KeyBanc slashes Model 3 sales estimates

Tesla Inc. shares slid about 2% Wednesday, after KeyBanc analysts slashed their fourth-quarter estimates for Model 3 deliveries to about 5,000 from 15,000.

Analysts Brad Erickson and Elliot Arnson said they expect the numbers for the mass-market sedan that was launched in July to be unveiled early next week.

“While it is likely to be a few quarters before the company’s true Model 3 gross margin judgment day arrives, we remain sector weight as we think the [Model 3] margin ramp will disappoint and investors will have to acknowledge no [Model S and Model X] growth at some point, which is not reflected in the shares,” they wrote in a note.

The revised estimate is based on conversations with salespeople at 18 Tesla stores TSLA, -1.75% around the U.S., said the analysts.

“We talked to stores in California doing as many as a dozen per week with around 10 being the average, and we estimate stores outside of California were doing something closer to half a dozen per week,” said the note.

Tesla has promised shareholders it would ramp up Model 3 production to 5,000 vehicles a week in 2017 and then to 10,000 a week in 2018. But production bottlenecks disclosed in November led the company to push back its 2017 goal to late in the first quarter of 2018, putting pressure on the company’s cash position.

Read now: For Tesla, 2018 is all about getting Model 3 production going

The analysts also discussed the Model S and the Model X and concluded that deliveries for the quarter are tracking generally in line with management’s expectation that the second half would be ahead of the first half’s deliveries of about 47,000 cars.

They acknowledged that the shortfall is unlikely to faze investors, who are more focused on the car being produced without defects and that the consumer response is favorable.

“Given Model 3 gross margin won’t really ramp up until probably the middle of 2018 [and] given the production difficulties to date, we think it could take a few more quarters before the company is more harshly judged if gross margin proves disappointing,” they wrote.

Read now: Why Tesla is literally an unbelievable stock

KeyBanc is expecting investors to eventually acknowledge that Model S and Model X sales are not growing, that gross margin will not expand in line with expectations and they are cautious on whether the Model 3 can spur demand at the price point the company needs to achieve its gross-margin target.

They estimate fair value for the stock TSLA, -1.75% at $240 to $280, below its current trading level of about $314.

Meanwhile, Tesla Chief Executive Elon Musk on Tuesday promised an electric pickup truck in the coming years, saying it would challenge Ford Motor Co. F, -1.11%  in that category. Musk made the promise in a tweet. The Model Y compact SUV is expected to start production in 2019.

Some Wall Street analysts have expressed concern that Musk is spreading himself too thin with his many projects, which include the established rocket company Space Exploration Technologies Corp., or SpaceX, and the Boring Company, a tunnel-boring venture he started out of his frustration with Los Angeles traffic.

Don’t miss: Elon Musk calls transit expert an ‘idiot,’ and then the ‘idiot’ fires back

Tesla in November launched its commercial heavy-duty truck, the Tesla Semi, and surprised observers by also showing off a new version of its ultraluxury sports car, the Roadster.

Read now: Want the new Tesla Roadster in 2020? Prepare to pay Tesla $250,000 now

Tesla shares have gained 48% in 2017, while the S&P 500 SPX, -0.01% has risen about 20% and the Dow Jones Industrial Average DJIA, +0.06% has advanced about 25%.

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