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Tesla Motors Inc (TSLA) Crashes on Failure to Increase Model X Deliveries

Tesla Motors Inc (TSLA) Model X

Tesla Motors Inc has taken the lead in the electric vehicle market, the demand for its cars is more than its supply, but that position can turn out to be more of a curse than a blessing. Tesla is yet to turn a profit but the market has driven its share price up in the hopes that the firm will grow into profitability as it rolls out more of its cars. However, Tesla’s ability to reach profitability is tied to the volume it is able to produce and to how soon the firm is able to reach the production target of 500,000 cars annually.

Tesla Motors Inc (TSLA) Model X
Photo: David Goldstein Model X parked outside Tesla Motors’ Fremont plant.

Tesla Motors is starting to see some downward pressure on its share price as Wall Street starts to worry about deliveries at the automaker. The Model X SUV is the second car on Tesla’s assembly line but the firm had created an infamous reputation for delays before it started delivering the SUV to buyers late last year. Now, a research note from JPMorgan analysts has hinted that the firm still has a long way to go with deliveries and the analysts have slashed their Q4 earnings estimate for the firm.

JPMorgan slashes estimate on Tesla Motors

JPMorgan analysts Ryan Brinkman and Samik Chatterjee have reduced their Q4 earnings estimates on Tesla in a research note that was released on Monday. The analysts noted the firm has not been able to deliver 4,000 Model S SUVs as expected and that the production is not likely to pick up the pace in the current quarter. In their words, “we estimate that the slower than expected ramp in Model X vehicle production will pressure gross margin.”

Last week, news broke that Tesla has dragged the original supplier of the Falcon doors for the Model X to court and the lawsuit revealed that most of delays in the unveiling of the Model X were caused by difficulty that the firm had in producing the doors. More so, the back seats also gave the firm some problems and Tesla needed to ensure that everything about the car was in perfect working condition in order to diffuse quality control issues that were raised by Consumer reports.

Tesla Motors says it has built about 500 Model X SUVs but only about 208 were delivered in the December quarter. The firm has also revealed that it is now able to produce about 250 Model X SUVs per week (as at the end of 2015). Hence, the firm can now produce 1000 Model X SUVs per month and 3000 units per quarter. 3000 Model X quarterly in addition to the production of the Model S might set Tesla back in its plan to deliver 75,000 to 100,000 vehicles in 2016.

Tesla shares take a hammering

In the light of weakness in Tesla’s ability to ramp up the speed with which its cars are built, the JPM analysts have slashed their EPS estimates by more than 50% from $0.26 to $0.10 for the soon-to-be reported quarter. The JPMorgan analysts also maintained their $180 price target on the stock. The $180 price target is bearish because it is 34.87%% lower than the average analyst price target of $276.41 that FactSet computed.

The market seemed to take the earnings slash seriously and the shares of Tesla dropped by 3.1% to close at $196.38 on Monday – to mark the lowest closing price since April 2015. On Tuesday, the shares of Tesla Motors were down another 1.44% to close at $193.56 and the stock is down by 19.4% for the year.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.