Tesla Motors Inc seems to be headed for a bumpy a ride in the coming days as analysts start to reconsider their bullish outlook on the stock. Shares of Tesla have been on a radical rollercoaster ride since the markets opened for trading this year. On Tuesday, the shares of Tesla crashed down to a new 52-week low of $180.23 to mark a massive 37% discount from its 52-week high of $286.65. Tesla ended the session with a 7.19% loss on Tuesday and the weakness in the stock scrapped off 23.8% from its share price in the year-to-date period.
A number of factors have combined to send shares of Tesla Motors on a downward spiral since the markets opened this year. To start with, U.S. equities didn’t start 2016 on a particularly impressive foot and there’s a sense of weakness in the general market. However, Tesla has some specific issues weighing down its share price. One of the key factors that caused the shares of the EV maker to crash yesterday is bearish sentiment from analysts who think it is best to avoid the stock now.
Analysts give up on Tesla Motors
MarketWatch reports that analysts at Pacific Crest have reduced their expectations on the prospects of the electric car company. The analysts think that Tesla’s inability to ramp up Model X deliveries to meet the demand is causing potential buyers to think twice about placing an order, thereby reducing Model X orders.
In the words of the analysts, “We are incrementally more cautious on overall Tesla demand,” the analysts said. Their latest checks with U.S. sales centers indicate Model X orders are running behind expectations… While getting the X to showrooms would help, we don’t expect that to happen until later this spring due to production challenges.”
The Pacific Crest analysts then went ahead to drop their expectations on some key metrics. For instance, they now expect Tesla Motors Inc to deliver 17,400 cars in the Q4 down from the previous forecast of 17,820 cars. The analysts posit that Tesla will deliver 50,580 cars in 2015 down from an earlier forecast of 51,000. Q4 revenue was reduced from $1.78B to $1.73B and full-year 2015 revenue forecast was dropped from $5.38B to $5.32B.
Pacific Crest was the second analyst to give up on Tesla since the markets opened for trading this week. On Monday, Adam Jonas of Morgan Stanley, who used to be one of the most vocal Tesla bulls, wrote a negative note on the prospect of Tesla Motors. He forecasts lower sales volume of the Model S, Model X and upcoming Model 3. On Monday, Adam Jonas dropped his price target on Tesla from $450 to $333.
We are lowering our price target by 26% to reflect our lowered volume expectations for Model X and Model 3, a lower valuation for Tesla Energy, and accelerating competition in the mobility business. Within our Cautious industry view, Tesla remains a core Overweight.
There’s still hope for Tesla Motors
Tesla Motors is set to release its fourth quarter (Q4 2015) earnings after the closing bell next week on Wednesday. The firm has not made any move that suggests that it expects to miss, hit, or beat its guidance; hence, all the chattering on Wall Street could be grouped as speculations.
If Tesla Motors hits or beats it previous guidance when it delivers earnings, the noise about dropped sales volume will be reduced and the firm should be able to recover lost ground. More so, the market might not read too much meaning into an earnings miss from the firm because much of the fears about an earning miss have already been priced into the stock.
The Morgan Stanley opinion is based highlighted the following 4 points:
1. Model X delays and cost overrun. Manufacturing and engineering challenges have delayed thelaunch by at least 1 year and may haveadded hundreds of millions of dollars to costs while potentially losing some customers.Weanticipatea slower ramp to ensuretop quality of theearly vehicles.We notethat our previous forecastalready baked in Model X volumes well below Streetexpectations on significant manufacturing issues we highlighted around 18 months ago. Higher volumes in Model S serveas a partial offset. Net impact on valuation per Tesla share: -$2
2. Slower (and lower) expectations of ramp in Model 3 volume. It is reasonableto assumethatTesla’s technical resources have been diverted from other projects to ensure proper execution on X.This,added with the need to ensurethe highest quality and mostefficient manufacturing design on its lowest priced car, leads us to reiterate our expectation of a Model 3 launch in late 2018 (unchanged),at least 1 year later than thecompany is targeting.Low demand for electric vehicles categorically and globally in a $30 oil environment leads us to reducevolumeassumptions for the Model 3, which weanticipate will achievean ATP of $60k or more. Our revised 2020 forecast for completevehicle deliveries is less than half of Tesla’s 500k unit target.We expect the Model 3 to bea really nicecar, justa bit rarer than many expect. Net impactvaluation per Tesla share: -$25
3. Reduced valuation of Tesla Energy. A mark-to-market here.Thetruecost of owning an energy storage unitappears even higher than we previously thought based on ‘all-in’ price quotes from SolarCity.This further suggests that theeconomics may not justify much of the gigafactory output being diverted to the power sector any timesoon. Additionally, while only an indirect factor, we would beremiss not to factor in some greater degree of risk from low energy prices into our valuation of TeslaEnergy. Net impact on valuation per Tesla share: -$29
4. Markedly greater levels of interest in the shared mobility arena by a wide range of competing participants. We have been surprised by the pace and breadth of announcements and capital commitments by a variety of auto and non-auto players focused on electric, shared,and autonomous vehicles Exhibit 1: Framing the 4 Key Risksand the Impacts to our Model Sou rce: Morgan Stan ley Research Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should beawarethat thefirm may havea conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a singlefactor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. Tesla Motors Inc| February 1, 2016 MORGAN STANLEY RESEARCH 1 over the past 4 or 5 months – all disciplines we haveattributed significant valueto for Tesla, in theform of its corevehicle business and in our vision of a shared mobility model.Weexpect thecompeting efforts from thelikes of Ford, VW,LG Corp, Alphabet, (and many others) are genuineand will seefurther significant follow-through with investmentand collection of human capital.We feel it is prudent to allow for a higher level of competitive pressurein our economic model for Tesla Mobility in theform of a greater pace of deflation of thetop line($/mile) and higher R&D expenses thatare not passed on to consumers of the utility, resulting in a reduction of our long-term OP margin of Tesla Mobility to 7.5% from 9.3% previously. In addition, we now usea discount rate of 13% vs. 11% previously. All other aspects of our Mobility model have been left unchanged (#s of cars, ramp). Net impact on valuation per Tesla share: -$61