The recent, amazing Tesla (NASDAQ 🙂 stock rally is faltering. And as with many previous boom-and-bust cycles, the electric car manufacturer is solely to blame.
Tesla plunged more than 6% to $ 333.04 on Friday, after winning more than 40% since the company reported a surprise gain for the October 23rd. What made investors nervous this time was the unveiling of Thursday's "Cybertruck," which did not meet analysts' expectations.
CEO Elon Musk had helped develop the hype around the new vehicle and claimed it would gain a significant market share from existing producers, led by Ford (NYSE 🙂 and General Motors (NYSE :). The attempt certainly makes sense because Americans love their pick-up trucks – making this segment of the market very lucrative for established operators in otherwise very challenging demand conditions.
But Tesla also had to show that it is progressing in this game through its innovative design capabilities and cost effectiveness, especially when rivals in its electric sedan business are about to make a meaningful entry. Instead, Tesla & # 39; s truck unveiling has so far produced more critics on Wall Street than admirers.
"Tesla & # 39; s Cybertruck looks weird … really, really weird," wrote Bernstein analyst Toni Sacconaghi after the event in a damning note to investors. "Musk had warned investors that picking up Tesla would be" really futuristic, such as cyberpunk Blade Runner, "and he wasn't kidding."
Although there is no shortage of loyal Tesla fans who will still buy the new truck despite the very unusual design, many analysts were skeptical that the sales potential could challenge both Ford and GM.
Evercore ISI analysts estimate that it would be difficult for Tesla to hit 50,000 units in two years when the company plans to sell the truck. If that happens, sales of Tesla pickups should add $ 2.5 billion in sales – a number that, according to Bloomberg data, is already included in the existing 2022 consensus revenue estimate of nearly $ 42 billion.
"Musk has been enthusiastic about his Blade Runner-inspired design for months, but we were still surprised at how futuristic he went with it and believe it can destroy his dreams," said Cowen analyst Jeffrey Osborne.
Unfulfilled promises
An important reason why analysts are concerned about Tesla's truck model is that it is difficult to predict whether the car manufacturer will deliver on its promises. It has a history of missing its own deadlines with many missteps, including Musk & # 39; s failed attempt to keep the company private early this year, ongoing problems with its SolarCity project and exaggerated figures about its car production goals.
Although the company was able to make a surprise profit in the third quarter, the road to meaningful profitability is still full of danger. Tesla bulls that launched the shares have ignored the fact that sales fell in the third quarter on both sequential and annual basis. While announcing its Q3 revenue, Tesla has also lowered its guidelines for the year – it now expects to deliver more than 360,000 vehicles this year versus an old range of 360,000 to 400,000.
Due to Tesla's unreliable track record in deliverables, we have warned investors that the current rally in its shares is not reliable and could unravel at the first sign of trouble. The stock is currently traded with 75 times expected earnings estimates, about 10 times what Detroit-based rivals achieve. What we have here is a high degree of hope that the car manufacturer will one day deliver and show the level of growth that will justify its current value.
Bottom Line
Tesla's stock remains a very speculative bet. It is difficult to justify the premium valuation compared to industry peers if the overall demand remains muddy and the company continues to face major cash flow problems. We don't think Elon Musk has succeeded in changing that comparison by launching his Cybertruck and creating a lot of hype about the sales potential.
