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March 22, 2019 11:45 AM, EDT

Soft Demand Expected for Tesla Model 3 Until Price Drops

Tesla Patrick T. Fallon/Bloomberg News

Demand for Tesla Inc.’s Model 3 sedan is expected to remain soft in the United States until the release of the lower-priced $35,000 model next quarter, Cowen analyst Jeffrey Osborne said.

State government and third-party data suggest demand in the first quarter will be weaker than Cowen’s prior expectations, even with what Osborne calls the “typical end of quarter frantic push.” He cut delivery estimates for the Model 3 to 47,500 from 55,000 and for the Model S/X to 18,000 from 21,500. The analyst said the biggest risk to the revised estimates may be China, where delivery expectations and customs clearance are less transparent.

“We have also updated our model to reflect the company’s price changes throughout the lineup and the likely negative impact to margins,” Osborne said in a note to clients March 22. He has an underperform rating on the stock and cut his price target to $180 from $200, implying around 34% downside risk from the current share price.

Tesla

Tesla Inc. Model X P100D sports utility vehicles sit on display at Tesla's showroom in New York. (Mark Kauzlarich/Bloomberg News)

Tesla typically reports quarterly delivery and production data within a few days of the end of the period. Osborne said that a high vehicle-in-transit number likely will be an indication of delivery logistics challenges in Europe and China, similar to what was seen in the United States market last year. He also estimated that production can exceed deliveries by 10,000 to 15,000 vehicles, which “will be a drain on cash in first quarter.”

The carmaker’s shares fell 0.7% to $272.14 March 22 in New York trading. The stock has fallen 18% this year.