Goldman Sachs Group Inc. downgraded Tesla Motors Inc., warning incremental risk related to Automaker’s M&A deal with SolarCity and its ability to launch its new Model 3.
Goldman analyst David Tamberrino downgraded Tesla to “neutral” from a “buy” in a note Thursday. The bank also cut its 6-month price target to $185 to $240.
“We now see incremental risk to the business related to management’s willingness to deploy capital for M&A, and we believe that any delay in the company’s timeline to launch its new Model 3 will be detrimental to the shares,” Tamberrino wrote in the report.
Tesla shares dropped as much as 3.46 percent to $201.23 in the early trading, the biggest intraday drop since Sept.1.
Tesla Chief Executive Elon Musk plans to raise more money in the fourth quarter or early next year to fund the development of its Model 3 sedan. The company also need money if the $2.6 billion deal with SolarCity is approved by the shareholders. Both companies are considered as “cash-burning machines”
"With solid third-quarter 2016 deliveries and the potential downward catalyst of a missed Model 3 launch timeline out in the second half of 2017, we prefer to be neutral on shares," the report noted.
Goldman was one of the underwriters of Tesla’s stock offering in May. Goldman spokeswoman Leslie Shribman said that the bank’s research is done independently from its underwriting.
“We followed all of our standard policies and procedures with respect to our research publication today,” she said.