Tesla Motors to Launch New, Cheaper Model 3, Expert Says Caution

Tesla Model 3

Tesla Motors Inc (NASDAQ:TSLA) is launching a new inexpensive affordable electric car this week. Much like the smartphone maker, Apple’s version of the iPhone 5C, Tesla Motors have launched their cheaper version, the Tesla Model 3.

Analysts, however, believe irrespective of the launch the   problems facing the company will not go away quickly. Colin Langan of UBS on CNBC’s “Closing Bell” said, “I think there are a lot of reasons to be cautious.”

The new version Tesla Model 3 that Tesla Motors is launching starts at a modest $35,000. As expected, the production of the cheap version of Tesla cars, also cost less than the more luxurious Model S and Model X. Expected production is to be late next year.

There has been a drop in the share price of Tesla Motors Inc (NASDAQ:TSLA) this year. The shares have declined by about 4 percent. This, however, does not reflect the full 12 month period. In the period, Tesla Motors Inc shares rose nearly 25 percent. Langan, however, put a dampener on this news noting that, capital expenditures and possible market saturation would probably weigh on the automaker’s shares.

Langan predicted a sell rating of $120 on Tesla. Tesla’s share price closed around $230 on Monday. Langan said, “They’re burning cash at this point so that’s another critical risk that investors should be focused on.”

Langan comments, however, are not   echoed by everyone with another analyst from Stifel, James Albertine arguing that the company was capable of expanding at both high and low ends.

On the same show Langan was on, he said, “If you dig through the numbers, they are going to continue to grow at a significant pace at the luxury high end, taking share there.”

Albertine has a buy rating for Tesla shares at $325 and expects production volume of the cheaper Model 3 helping Tesla sustain its growth.

Tesla Motors Inc delivered 50,000 vehicles in 2015 and last week they said that they expected to release 80,000 to 90,000 vehicles by the end of the current year. The launch of the new Tesla Model 3 is seen by others as a moment of truth for Elon Musk, the chief executive at Tesla Motors. The electric car market is not as diverse as for the rest of the automobile industry. The numbers that Tesla Motors show for cars sold are minuscule if put up against those of BMW and the Mercedes Benz which stand at 1.4 million cars per year.