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Despite ‘Steady Demand’ in Europe, the Bull Case Still Looks Dicey for Tesla (TSLA) Stock

Tesla (TSLA) hasn't had a great year, with shares falling over 30% since the start of 2019. But it’s far from all bad. The electric carmaker reported two consecutive quarterly profits for the first time ever and it significantly increased production to about 7,000 vehicles per week.

Now that it has hit its stride in ramping up production, Tesla will need to prove to investors that there’s a big enough market for the Model 3 to justify a higher stock price. Fortunately, Tesla still has more major global markets to expand to. One of these markets is Europe, where Tesla has placed its biggest hopes for long-term profit.

Wedbush analyst Daniel Ives is seeing a "steady demand" for the Model 3 in Europe, which "should help neutralize some weakness seen out of China." But is that enough to get you excited about Tesla stock? Not so sure.

Ives remains sidelined on TSLA, as he reiterates a Neutral rating and price target of $220, which implies a slight downside from current levels. (To watch Ives' track record, click here)

Ives commented, "Europe demand thus far is a positive development for Tesla but it does not change the broader demand and profitability worries we continue to have on the story. In essence, unless self driving functionality and other software upgrades are sold with lower priced Model 3 units it will be a major challenge for Tesla to ramp its business model and gross margin profile in line with long term targets and therefore show profits on an ongoing basis. Sales of Model S/X continue to be very sluggish in the field and will weigh on Tesla's margin profile which remains a real worry for Fremont and the bulls."

The analyst continued, "With the company's debt load remaining an albatross around Fremont's neck, strong cash flow and profitability will be needed for the coming years to help fund Musk's myriad of initiatives and appease frustrated investors in the Tesla story. While demand showed an impressive bounce back in the June quarter and the company is seeing good order activity for 3Q, we continue to believe that hitting 360k to 400k unit guidance for FY19 will be a very difficult Herculean-like feat."

All in all, Wall Street is not rooting for the electric carmaker's success, earning a weak analyst consensus rating. TipRanks analytics exhibit TSLA as a Sell. Based on 27 analysts polled in the last 3 months, 14 recommending Sell, 6 suggesting Hold, and 7 saying Buy. However, the 12-month average price target stands at $245.62, marking about 10% upside from where the stock is currently trading. (See TSLA's price targets and analyst ratings on TipRanks)