Tesla (NASDAQ 🙂 is in the grip of extreme criticism these days. Some top Wall Street analysts present their sausage case scenarios for the electric car manufacturer, which was considered not so long ago as the best transportation stock.
Morgan Stanley analyst Adam Jonas, who had a $ 379 price target on Tesla last year, raised the possibility that the stock fell to $ 10 in a private conversation with investors reported by the media. "Tesla was seen as a growth story," he said during the call. But:
"The supply exceeds demand today, they heat money, nobody cares about the Model Y, they take up capital and there is no strategic buy-in. Today, Tesla is not really seen as a growth story. It is rather seen as a disturbing story about credit and restructuring. "
Two other Wall Street analysts in their most pessimistic scenarios said the shares could fall to $ 36 or less. Another mentioned the company's problems as a & # 39; Code Red & # 39 ;.
This extremely bearish analysis summarizes almost everything that happens in Tesla and with its share price this year. These views also confirm our continuing negative attitude towards Tesla this year. Trading at $ 196.59 at the end of yesterday, this year's Tesla share has lost more than 41% of its value, reducing the company's market capitalization by around $ 30 billion since the summer of last year.
There have been two negative developments over the course of six months that have played an important role in making some prominent analysts on Tesla bearish. Let us take a deeper look:
1. Ambitious demand forecasts
Tesla's share price had always reflected investor confidence that this high-tech car company would revolutionize the industry by producing cheap electric cars for the mass market, and that technology and unique production philosophy would ensure that this would be cost-effective. But that confidence is quickly disappearing this year, partly due to the endless internal challenges of Tesla and the missteps of Elon Musk, and partly due to the changing market dynamics.
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Sales of Tesla & # 39; s cheap Model 3 sedan fell sharply in the last three months of last year, despite several rounds of price cuts. Combined deliveries of the more expensive models S and X, which are sold at a profit, decreased by 50% compared to the previous quarter.
According to a note this week by analysts at Sanford C. Bernstein & Co., Tesla will soon face tough competition from European automakers, who are better positioned to compete
Tesla appears to be structurally not profitable, with high fixed costs, a much smaller market for its models than expected and technology that is no longer unique, they said. Daimler & # 39; s (OTC 🙂 Mercedes-Benz brand and BMW (OTC :), on the other hand, consistently generate cash and are planning to expand their electric line-ups soon.
That challenging environment means that Tesla will soon not make an operational profit with an electric sedan of $ 35,000 unless demand rises rapidly and the company is able to tackle the problems in the supply chain. But a 31% drop in vehicle deliveries from the fourth quarter has raised concerns that Tesla is peaking for buyers for its more regular vehicle.
Why the drastic reaction of the market? The answer is that it confirms investors' greatest fear of the credibility of Tesla's latest growth forecasts. If those growth assumptions were based on an over-optimistic scenario, investors have little reason to cling to the Tesla share, which has had to deal with many setbacks in the past year
2. Cash crunch has deteriorated
At the center of the crisis of confidence that Tesla is currently facing, are the company's rapidly depleting cash reserves and therefore the means to pay for the increasing debts. Tesla's total debts, including debts and creditors, now amount to $ 22 billion, while the cumulative losses approach close to $ 6 billion.
What makes investors nervous is how Mr. Musk will pay these obligations if the demand for the Model 3 does not rise and he is unable to control costs. In the most recent quarter, Tesla recorded a loss of $ 702 million attributable to ordinary shareholders for the first quarter. On an adjusted basis, the loss was $ 2.90 per share.
Tesla burned about $ 950 million in cash in the first quarter, contributing to a total cash consumption of $ 5 billion since 2017. At the beginning of May, the company managed to raise $ 2.35 billion in new capital, with $ 750 million in common shares and $ 1.6 billion in convertible bonds. The financing, according to Morgan Stanley, is only sufficient to provide a 12-month bridge.
Tesla no longer expects to make a profit in the second quarter, but predicts revenues in the third period. It confirmed its guidance of delivering up to 400,000 vehicles this year, while noted that production will be "considerably higher" than deliveries due to overseas delays.
Bottom Line
The dramatic plunge in Tesla's share price shows that the company is rapidly losing investor confidence caused by the declining demand for its cars and the declining ability of the company to generate internal cash flows for its operations to run. After losing more than a third of its value, the stock is in a distressed area, where only a lot of miracles could help reverse the course.
