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Tesla Motors Inc (TSLA) Loses Control as Musk Steers Company Off Cliff

Tesla Motors Inc (TSLA) Autopilot

Tesla Motors Inc is struggling as Wall Street rethinks the prospects of the company. Analysts, traders, and investors are showing a lack of confidence in Tesla Motors and this loss of confidence is evident in the freefall of Tesla’s share price. Shares in the electric vehicle company were down to a new 52-week low of $157.75 on Friday to mark an incredible 44.97% decline from its 52-week high of $286.65.

Tesla Motors Inc (TSLA) Autopilot

Shares of Tesla closed down 7.26% on Friday to confirm the bearish tendencies of the stock in recent times. Shares of Tesla Motors are down 14.7% in the last one week, the stock has lost 29.6% in the last one month, and it has lost 32.1% in the year-to-date period. The main reason the shares of Tesla Motors has been tanking is the biggest mistake that the firm made in building the Model X. Yes! You read that right; the Model X is Tesla biggest mistake.

Musk veers from master plan

When Tesla Motors launched the Model X, Elon Musk confirmed to the public that he made a big mistake in building the Model X. He says the Model X is probably the hardest car to build. In his words, “There’s far more there than is really necessary to sell a car… Some of these things are so difficult; they do make the car better, but the difficulty of engineering those parts is so high, that in retrospect, if we had known the true engineering costs and the amount of complexity associated with it I think we would have probably done fewer new things.”

Elon Musk’s’ words show the positive mindset that has pushed most of the impulsive moves that has made Tesla a success so far. The words however, betray Tesla’s propensity to be brash in its decision- making and to rush headlong into actions without thinking it through. Before the Tesla bulls start throwing rotten Apples at me, you might want to take a moment to understand why I consider the Model X to be Tesla’s biggest mistake.

To start with, building the Model X went against everything that Tesla planned in its “Master Plan” back in 2006. In 2006, Elon Musk said he would flag off the plan by selling a performance EV to a niche clientele of early adopters who will pay for the cost of research and development. The revenue from the sales of the luxury performance EV will then be used to build an affordable EV that will be used to expand downwards to the mainstream market.

Here is a compressed version of Tesla’s master plan in Elon Musk’s words

As you know, the initial product of Tesla Motors is a high performance electric sports car called the Tesla Roadster…  I can say that the second model will be a sporty four door family car at roughly half the $89k price point of the Tesla Roadster and the third model will be even more affordable…  All free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible. When someone buys the Tesla Roadster sports car, they are actually helping pay for development of the low cost family car.”

Elon Musk stayed true to the master plan with the Tesla Roadster, and the funds from the Roadster went into the building the second Model, known as the Model S.  However, Musk didn’t keep his words of making the second Model a ” a sporty four door family car at roughly half the $89k price point of the Tesla Roadster”, but Wall Street and customers didn’t mind because the Model S was worth every dime even though it costs about as much as the Roadster.

The market was content to wait for the third model in the hopes that it will “be even more affordable” as the revenue from the Roadster and the Model S goes into building the car. Oh boy, saying that we were wrong is an understatement. The third Model, the Model X turned out to be much more expensive that the Roadster, the Model S, and an affordable EV for the masses slipped out of reach once more.

The worst part was that the Model X was plagued with a notorious reputation for delays, Tesla has dragged one of its suppliers to court and as at the end of 2015, only 208 units of the Model X had been delivered. The market seemed to have lost all forms of patience with Tesla and Wall Street responded by cutting of a sizeable portion off its share price and its market cap.

The Model 3 should fix Tesla Motors

Tesla Motors seems to have realized its mistake with the Model X and the firm is focusing all its attention towards building the Model 3 to fix its problems and fast. The Model 3 is Tesla’s affordable mass-market EV – the base model will be set at the $35,000 price point before incentives and it will have a range of about 200 miles. Nobody outside Tesla knows what the Model 3 will look like, but we can reasonably expect it to be better than rival cars priced at $35,000 in terms of build quality.

However, let’s hope that the Model 3 is not cursed with delays that plagued the Model X. Tesla Motors has said that the Model X will be unveiled next month. Nevertheless, Elon Musk, as reported by TechInsider, as said that we might not see anything beyond the pictures of the Model 3 next month. He says, “the first pictures of the Model 3 will be end of March” even though he is being a little coy about what will be revealed.

However, Tesla has a tradition of showing off its vehicles with a concept or prototype on display. Unveiling the Model 3 with “mere pictures” might raise red flags and the fact that the firm has not locked down a specific production or delivery rate for the Model 3 other than the vague late-2017 start might not help the cause of the EV marker. Nonetheless, there’s not much we can do but wait until Tesla unveils its Model 3 next month, with or without pictures.

Here’s what Wall Street Expects from Tesla

Tesla Motors will report its Q4 2015 earnings after the market closes on February 10 and Wall Street will have an opportunity to have a first-hand glance into the state of affairs at the company. Much of the weakness that Tesla has experienced it its stock at the moment has been caused by rumors, forecasts, and speculations about the state of things at the firm. The earnings report will show if Wall Street’s estimates has been right wrong.

On earnings: analysts polled by FactSet expect Tesla to post Q4 EPS of $0.17, which is exponentially higher than the adjusted losses of $0.13 per share from the same quarter in 2014. Tesla Motors has had four consecutive quarters of losses and a hitting or beating EPS estimates should reignite the bullish bias for the firm.

On revenue: The market expects Tesla Motors to report revenue of $1.84B, which marks a massive 67.27% gain from revenue of $1.1B from the same quarter in 2014. An outperformance on revenue should also boost the prospects of the firm and it will confirm the analysts forecast that revenue will top $2B in Q2 2016.

The market will also be paying special attention to the progress of Tesla’s Gigafactory project. The Gigafactory is crucial to Tesla’s ability to bring the Model 3 to the market in 2017 because a working Gigafactory should drive down the cost of making the Model 3. There are rumors that the Gigafactory is not creating as many jobs as expected in Nevada and the firm will need to show Wall Street that the Gigafactory is still on/ahead of schedule.

Tesla Motors will also need to show that it has solved most of the production problems plaguing the Model X and that Model X deliveries will stabilize going forward. More so, Wall Street will want to know if the demand for the Model S is still strong and if the firm’s assembly plants will be able to handle the production of the Model S, Model X and Model 3 without problems.

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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.