Tesla was just downgraded by RBC. Here's why

By TeslaFOXBusiness

Tesla cuts its workforce by 7% to reduce the price of the Model 3

FoxNews.com automotive editor Gary Gastelu discusses how Tesla shares fell after the company announced that they would cut 7 percent of its workforce in order to reduce the price of the Model 3.

RBC Capital downgraded Tesla to underperform on Wednesday, saying growth expectations for the electric-car maker were too lofty based on its actual performance.

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The Canadian investment bank said in a note to investors that it slashed its target price for Tesla to $245 from $290. Shares dropped on the news.

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TSLATESLA INC.189.88-5.61-2.87%

"The company seems to be more tactful with messaging which is a long-term positive, but means downward pressure to growth expectations -- which in our view are too high to justify current levels, let alone to add to positions," analyst Joseph Spak said in the note.

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But Spak said the reality of billionaire investor Elon Musk’s company becoming a high-volume manufacturer are beginning to falter, as Tesla struggles to meet production goals.

“A stock should, of course, discount future cash flows, and the market took the promises of Tesla and their future growth potential to justify lofty valuations while Tesla took capital needed to support their endeavors,” he said. “But, the rubber appears to be hitting the road as the realities of Tesla becoming a volume player, the challenges to scale and deliver high volume at high ASPs/margins are coming to a head."

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Last week, Musk said the company would cut 7 percent of its workforce -- several thousand jobs -- while it ramped up production of its Model 3 sedan. That took place less than seven months after Tesla said in June it would eliminate 9 percent of its workforce in order to reduce costs and boost its profits.

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