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Tesla was cut to ‘neutral’ from a ‘buy,’ with a note that the proposed merger with SolarCity Corp. makes Tesla a riskier bet.Tomohiro Ohsumi/Bloomberg

Goldman Sachs Group Inc. downgraded Tesla Motors Inc., ditching a buy rating it placed on the stock in May as the investment bank co-managed a $1.4-billion (U.S.) stock offering for the electric-car maker.

Goldman analyst David Tamberrino cut Tesla to "neutral" from a "buy" in a note Thursday, saying that the proposed merger with SolarCity Corp. makes Tesla a riskier bet. The bank lowered its price target to $185 from $240, helping send Tesla shares down as much as 4 per cent, the biggest intraday drop since Sept. 1.

Mr. Tamberrino's downgrade comes at a pivotal time for Tesla. The company will soon put its SolarCity deal to a vote with shareholders and try to raise more cash. That may be complicated by the fact that Morgan Stanley and Goldman, the two banks who have been lead underwriters on most of its deals, have both dropped "buy" ratings since their last offering.

"We now see incremental risk to the business related to management's willingness to deploy capital for M&A, and we believe that any delay in the company's timeline to launch its new Model 3 will be detrimental to the shares," Mr. Tamberrino wrote in the report.

Goldman spokeswoman Leslie Shribman said in an e-mail that the bank's research is done independently from its underwriting.

Tesla chief executive officer Elon Musk plans to raise more cash in the fourth quarter or early next year as the company works on the Model 3 sedan, an affordable car designed to get electric drive technology to the masses. He will also need money if the SolarCity deal is approved because the two companies have burned a combined $2-billion in the first half of this year.

The combined cash needs of both companies are a key reason why some shareholders have left the stock. Shares fell more than 10 per cent on June 22 after Tesla announced the proposed merger.

Mr. Musk, the billionaire co-founder of Paypal Inc., has been trying to burnish the company's image in preparation for another stock or debt offering. On Aug. 29, he sent an e-mail to employees urging them to cut costs and deliver "every car we possibly can," according to the e-mail, which was obtained by Bloomberg. Tesla said Oct. 2 that it shipped about 24,500 vehicles in the third quarter, topping analyst estimates for deliveries.

Goldman analyst Patrick Archambault upgraded Tesla on May 18 – the same morning that Tesla launched its secondary stock offering. Goldman and Morgan Stanley were lead managers on the deal, and Goldman said at the time that the call was made independently of the underwriting team.

Separately, Goldman's fund managers were dumping Tesla shares during the second quarter. The New York-based bank cut its ownership in half to 1.4 million shares in the period ended June 30, regulatory filings show. Goldman remains one of Tesla's 20 largest holders, with just under 1 per cent of the stock.

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