Analyst downgrades Tesla and says its home battery orders are 'misleading'

UBS says the numbers on Tesla's home batteries are 'misleading.'

In a note Tuesday, UBS analyst Colin Langan downgraded Tesla to "Sell" from "Neutral," and cut the firm's 12-month price target to $210 from $220.

In May, Bloomberg estimated that Tesla took orders worth about $800 million on its energy backup units.

Langan wrote that this number is overstated (emphasis added):

"TSLA received over $800m in "orders" (~3 [gigawatt hours], ~0.75 [gigawatts]) in the first 5 days of announcing the powerwall/Powerpack; however, this pace is misleading as customers did not put down deposits, so these are just solicitations of interest. More importantly, early adopters ("green" consumers) likely are driving up initial orders, but once these orders are filled, making the mass market leap will likely be difficult given the challenging economics."

Since orders don't necessarily translate into final sales, Langan said that Tesla's planned storage capacity of 15GWs by 2020 may end up being higher than demand.

Langan noted that Tesla's stock has surged 40% since investors anticipated the announcement of the home batteries. He estimates market demand of 3.2GW by 2020, less than the consensus of 7.2GW. If the broader estimate is correct, Tesla would need 75% of market share, according to Langan.

And meanwhile, there's still plenty of room for new competitors to eat into Tesla's market share.

Langan also expects that Tesla's spending on research and development for the new Model 3 and stationary storage will continue to grow, and he lowered estimates for 2015 earnings per share to $0.20 from $1.00.

Tesla shares fell as much as 4% in premarket trading. Shares are up 27% year-to-date, and 28% over the past 12 months.

Tesla closed up 3% at $282.26 on Monday.