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Tesla must stop overpromising, could need more finance -analysts

FILE PHOTO - The logo of Tesla is seen in Taipei, Taiwan on August 11, 2017. REUTERS/Tyrone Siu/File Photo

By Arjun Panchadar

(Reuters) - Tesla Inc shares fell 6 percent at opening on Thursday, as analysts expressed doubt over chief executive Elon Musk's communication with investors and some said the company could need more financing soon.

Four major houses - including Goldman Sachs and JP Morgan - cut their price targets by $5-$10 after the electric carmaker reported its worst ever quarterly loss and pushed back production targets for its Model 3 vehicle by three months.

While shares in Silicon Valley star Musk's venture were still up 50 percent for the year, reflecting faith in its positioning as a major future manufacturer, the company's share price has now retreated 23 percent since mid-September.

"Tesla needs to slow down and more narrowly focus its vision and come up for a breath of fresh air," Cowen and Co analysts said in a note. "Elon Musk needs to stop over promising and under delivering."

Tesla said bottlenecks in the rampup of production of the more affordable Model 3 sedan, widely seen as crucial to the company's future profitability, stemmed from its battery module assembly line at its Nevada Gigafactory, where Tesla had to redesign part of the production process.

It now expects to build 5,000 Model 3s per week by the end of the first quarter of 2018 from its original target date of December.

Some analysts were encouraged by the detail Tesla provided about the battery and production issues and expressed confidence in its ability to fix the problems.

But they were more divided on Musk's assurances that the company was now on top of the Model 3 issues and well-capitalised for the extra investment needed to resolve them.

"While we expect that increased Model 3 production will provide a meaningful injection of liquidity on a number of fronts, Tesla runs the risk of requiring financing over the next few quarters, particularly if Model 3 production continues to undershoot expectations," Nomura's Shah said in a note.

Goldman analysts, who already recommend selling Tesla shares, zeroed in on Musk's estimate that the company would not start spending heavily on future production in China before 2019, saying investors had expected the company to produce in the Chinese market within one to two years.

They cut their price target for the stock by $5 to $205 and said Musk would have to raise more capital in the second quarter of next year.

Overall, Wall Street is now far more cautious than previously on the stock, with 8 of 24 brokerages rating it "Buy" or higher, 9 "Hold" and 7 "Sell" or lower. Shares traded at $302.80 after opening on Thursday.

(Reporting by Arjun Panchadar in Bengaluru; editing by Patrick Graham)