Shares of Tesla Motors Inc (NASDAQ:TSLA) dropped on Thursday after Goldman Sachs downgraded its rating on the electric car maker. The firm is concerned over the potential collateral damage from Tesla’s planned acquisition of SolarCity, MarketWatch reported.
Why Tesla- SolarCity Deal Creates Risk
The stock price target was reduced to $185 from $240 by analyst David Tamberrino. He cut cut his rating on the company’s stock to neutral from buy.
Tamberrino is concerned about risks to the business resulting from management’s decision to deploy capital for mergers and acquisitions, and the effect on free cash flow.
“We believe the proposed combination of Tesla and SolarCity — two high-growth, high-cash burn businesses — creates a higher risk entity given the combined ongoing capital needs and higher net leverage that would potentially result,” Tamberrino said in his note to clients.
“We believe this creates potential incremental risk to Tesla and its legacy automotive business,” the analyst said.
Tamberrino believes any distraction that leads to a delay in the launch of its new lower-priced Model 3 vehicle could be “detrimental” to the shares.
Shareholders Sued Tesla For Proposed $2.6-Billion Merger
The electric car maker proposed to acquire SolarCity for $2.6 billion. The company has been facing lawsuits from shareholders challenging its deal with SolarCity, according to a report in MarketWatch.
To challenge the merger, four lawsuits were filed between Sept. 1 and Sept. 14 in Delaware. The suits allege breach of fiduciary duty by Tesla or by SolarCity board members, the electric car maker said in a filing Monday.
The suits “could prevent or delay completion of the Merger and result in substantial costs to Tesla and SolarCity, including any costs associated with the indemnification of its respective directors and officers,” the company said in the filing.
The companies expect the deal to close by the end of the year.
Shares of Tesla are down 15.58% for the year. The stock has dropped more than 24% during the last six months.