Tesla stock drops on Model 3 delay worries

SAN FRANCISCO — Tesla shares closed down 4% Monday after Goldman Sachs downgraded the stock on concerns related to the upcoming Model 3 sedan.

Goldman Sachs analyst David Tamberrino hit the electric-car automaker with a "sell" rating and lowered his price target from $190 to $185. Tesla shares closed at $246.23, down $10.77 a share.

A host of potential issues influenced Tamberrino's downgrade, many of them related to the launch of Tesla's first mass-market electric car, the Model 3. At present, it sells only two luxury vehicles, the Model S sedan and Model X crossover.

Tamberrino's analysis includes the possibility of a delayed Model 3 launch —currently slated for summer — as well as concerns that Tesla's integration of SolarCity could prove a drain on its financial resources.

"The company may lack the singular focus it should have on achieving its Model 3 launch targets," Tamberrino wrote, citing automotive-related capital expenditures of $3 billion in 2017, the expected need to spend $2.8 billion of its accumulated cash and the need to try to borrow another $1.7 billion to pay for it all.

The analyst also pointed out that "some suppliers have expressed concern around final designs not being locked down" on the Model 3, which could contribute to missed production targets.

"We expect to see pressure on shares as we progress through the year,," Tamberrino wrote, citing the expected further expensive investment needed and less demand for the Model 3 than expected by a consensus of analysts. "Further, the acquisition of SolarCity – which is undergoing its own business model transition – comes at a time when we believe Tesla should be singularly focused on becoming a mass automobile manufacturer."

Tesla stock is down 11% from its February 13 high of $280.

CEO Elon Musk is known for expansive targets. He's hoping to make solar as hot as his hip, if pricey, electric sedans, and has started to make in-roads on the rocketry front through increased government contracts.

And Tesla's rapidly expanding Gigafactory in Nevada, where the company plans to make batteries for its cars and electricity storage products, may be joined by as many as three other multi-billion-dollar factories.

In addition to guiding Tesla and SpaceX, Musk also is on two of President Trump's business advisory councils, a move he has defended by saying that he preferred to have a dialog with the new administration although he has disagreed with its recent immigration ban.

Of all Musk's current projects, however, the launch of Model 3 arguably represents a critical crossroads for the upstart automaker. Musk has projected production of 500,000 units a year, up from around 80,000 Model S and X sedan numbers.

Tesla has created a brand-equity aura with its high-tech and fast $100,000 sedans that could help lure consumers to its smaller if similarly styled Model 3.

But if production is significantly delayed, that could give entry-level EVs from rival automakers such as General Motors, Nissan and others a chance to pounce first.

Another potential lag on consumer adoption of entry-level EVs that could also impact Model 3 sales is the currently stable price of oil.

Musk also has been tackling accusations from worker Jose Moran, whose recent blog post detailed grueling working conditions at Tesla's Freemont, Calif. manufacturing facility.

In an email to employees last week, which was obtained by Buzzfeed Media, Musk said Moran's charges were unfounded, urged workers not to join the United Auto Workers union, and promised future improvements to factory life that include frozen yogurt and a roller coaster.

Tamberrino still sees a profitable way forward for Tesla, but it includes a number of caveats.

"We would become more positive on the stock if the company were able to demonstrate improved manufacturing execution by driving more rapid quarterly production growth in its current vehicle offerings," he wrote, adding that driving down the cost of its battery packs and demonstrating cross-selling potential between Tesla products and SolarCity products also are part of a winning strategy.

"While we do believe the company has at least one product cycle lead on its competitors," he wrote, "there ultimately could be a Samsung to this Apple (think smartphones), with incremental competition on the horizon as we have detailed in past reports."

Follow USA TODAY tech reporter Marco della Cava on Twitter.