Tesla Motors Inc has been a Wall Street darling for years, and the good forecasts from sell-side voices have helped to prop up the firm’s stock since the launch of the Model S. After the release of the Model X, and likely before the first real version of the car has even shipped, more than one Wall Street researcher is starting to sound cautious about the firm’s future.
On Wednesday morning Baird’s Ben Kallo downgraded his outlook for Tesla Motors, and lowered his price target on the firm’s shares to $282. On Tuesday Morgan Stanley’s Adam Jonas decided that Tesla Motors shares were worth $450 rather than $465. Both analysts are concerned with the way that Elon Musk is making, and selling, the Model X. They may have a point.
Tesla Motors loses Wall Street halo
Mr. Kallo, who previously told his clients to Buy Tesla Motors shares ahead of the launch of the Model X, put a price target of $282 on Tesla Motors shares on Wednesday and gave the firm a Neutral rating.
He said that the rating change didn’t imply lack of faith in Tesla Motors. On the contrary he said that he was “confident TSLA will be able to ramp Model X production, although the timing is uncertain, and with the current market backdrop we would like to keep some dry powder. With limited visibility to positive catalysts until the release of the Model III prototype, we are moving to the sidelines.”
Though he’s sure that the Model X will be a success, Mr. Kallo shows at least a little concern for the speed at which Elon Musk’s team will be able to build it. With just six cars shipped by the end of the third quarter, that worry is surely justified.
Tesla Motors, now that the Model X is out the door, is in need of a good story. Mr. Kallo can’t see one, so he thinks it’s better to ride out the current global market tumult, and the execution risks that the firm faces right now. Mr. Jonas of Morgan Stanley has a different idea.
Though he wrote, in his report published on Tuesday, that Tesla Motors had flubbed the launch price for the Model X and wouldn’t ship as many cars as thought, Mr. Jonas thinks the big story from Elon Musk’s firm has yet to arrive.
According to Jonas Tesla will begin to compete with Uber in the coming years, and the firm will first show off a service that will allow it to do that early in 2016.
RBC Capital markets also jumped on the bandwagon. The firm, which didn’t cover Tesla Motors stock before Wednesday morning, says it expects Elon Musk’s firm to Sector Perform in the next twelve months. The analysts said that Tesla’s story had to shift from opportunity to execution in the period ahead, and saddled shares with a price target of $280.
Tesla Motors needs Wall Street report
Tesla Motors is something like a self-fulfilling prophecy. The firm burns cash with each and every quarter, and, judging by the Model X forecasts, it’s likely to continue doing so for quite a while. It needs somewhere to go in order to replace the cash it burns. Up until now Wall Street has obliged.
Tesla Motors has access to more than one line of credit from the major Wall Street banks, and the firm has managed to raise money through the sale of new shares more than once since its IPO. If the firm’s value begins to fall, however, and momentum turns around those dangers may close in.
That’s the big problem for Tesla Motors, and it’s the major risk that could derail the entire Musk-driven enterprise. If Tesla doesn’t have access to capital it’s not going to be able to build and test the Model 3. A business that makes just the Model S and Model X certainly isn’t worth anything like $30B.
Tesla Motors has quite a lot of debt that needs to be paid, and the firm will need quite a lot of cash simply to keep the lights on in the coming months. With Wall Street nervous in the wake of the Model X, the risks of key sources of cash being cut off are rising.
It’s strange, but quite a lot of Tesla Motors real business success depends on how well it can convince Wall Street that it’s doing well. Elon Musk has been good at that so far, but with the launch of the Model X, it seems he may have run out of fuel.