Tesla Model 3 cancellation risk causes analyst to put brakes on outlook

Reverse gear an analyst reported that cancellations for Tesla’s Model 3 had surpassed the number of new orders

Gill argues that Tesla's Model S and Model X are seeing sales crimped by increasing competition, along with potential cannibalization from the cheaper Model 3, and the expiration of tax credits for vehicle owners in some areas.

"In August '17, [Tesla] cited a refund rate of 12 percent", the analyst wrote.

In a note to investors on Thursday, analyst Rajvindra Gill said that Tesla's Model 3 "refunds are outpacing deposits as cancellations accelerate", according to CNBC, which obtained a copy of the note.

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Needham & Co. analyst Rajvindra Gill downgraded Tesla's stock on Thursday, claiming in a letter to clients that almost 1 in 4 of the carmaker's Model 3 orders have been canceled - with refunds now outpacing purchases. Shares of the company dropped roughly 3 percent on Thursday when Gill's warnings were circulated, but the price appeared to have nearly entirely recovered by 2 p.m. ET. Gill now believes that the refund rate is now twice that. The company's share price is down 8% since last month.

He doubts Tesla will reach its target of 100,000 Model 3 deliveries by the end of the year - to accomplish that goal would require it would have to ship 27% more cars in the second half of the year than it did in the first half. Customers have to put down a refundable $1,000 deposit to reserve a Model 3, then pay another $2,500 to choose their specific version.

Prior to Gill's analysis - several details of which Tesla disputes - company shareholders were already none-to-pleased with CEO Elon Musk, who received universal rebuke for a Twitter rant against one of the rescuers of 13 people stranded in a Thai cave in recent days. Some have also hoped that it would be the critical element in improving Tesla's business, which continues to post massive losses.

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