Tesla Motors Inc. (NASDAQ: TSLA) was downgraded twice this week. The downgrades together with the bearish market of recent days turned this week into the worst week Tesla had this year. The stock plummeted $20, or 7%, resulting into a decline of more than $3 billion in the company’s market cap.
Deutsche Bank (NYSE: DB) and Pacific Crest Securities, the firms that downgraded Tesla this week, do not in any way claim that Tesla is not worth investing in, but as analyst Brad Erickson from Pacific Crest explained, “We believe that Tesla could become a dominant player. But at this point, Tesla’s shares appear to already reflect this opportunity.”
Both firms revealed high valuation concerns, saying that uncertainties such as low oil prices, fear of growing competition, and problems promoting the vehicles in China are no longer as worrying to investors as they were earlier in the year. The stock increased by about 20% since the beginning of the year, and that perhaps has been too much the firms claims.
By admission, the downgrades do no fully reflect the upcoming short term and long term catalysts of Tesla, like the anticipated launch of the Model X SUV later this year, and the Model 3, which will be the company’s attempt to penetrate the mass market with a cheaper Tesla model. The company anticipates starting production of the Model 3 in 2017.
As for the soon to be released Model X, Tesla CEO Elon Musk believes the crossover will be able to double the company’s sales overtime, becoming the more popular car than the successful Model S. The Model X already has more than 20,000 preorders waiting to be delivered.