By Irina Slav
A spike in doubts about Tesla’s ability to deliver on its financial performance targets has caused a more than 20-percent drop in its stock, with nine of the ten days to May 20 registering declines, Bloomberg reports.
An additional blow to the share came from a once-optimistic analyst with Wedbush. In a Sunday note, Dan Ives had a few choice metaphors for what’s in store for Tesla. “Kilimanjaro-like uphill climb” and a “Herculean task” were among them as Ives, who until last month had a US$365 price target on Tesla’s stock, is now doubtful about the demand for the flagship affordable Model 3 as well as the company’s ability to hit its car delivery targets.
Tesla reported disappointing delivery numbers for the first quarter along with a hefty loss after its first profitable quarter ever in the last three months of 2018. Then, in late April, Elon Musk said, “There is some merit to raising capital,” after a slew of analysts had been saying it for quite a while with the Tesla CEO firmly of the opinion that Tesla could survive without additional cash.
Tesla did raise cash, though, to the tune of US$2.3 billion in a combination of US$650 million of common stock and US$1.35 billion aggregate principal amount of convertible senior notes due in 2024. The day the company offered the stock was the day its losing streak began. To date, Tesla is once again behind Ford in terms of market capitalization, and although this in itself is nothing to worry about too much, the reasons behind the selloff are certainly a cause for concern.
Tesla plans to deliver between 90,000 and 100,000 vehicles in the current quarter after in the first quarter it only delivered 63,000. It also has plans for 360,000 to 400,000 car deliveries for full-2019. Wedbush’s Ives said in his note that reaching that full-year goal would be a Herculean task. What’s more, however, is that it may end up needing more cash, to the tune of US$1-2 billion if the company doesn’t book a profit for this quarter.
“With a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser-focused on shoring up core demand for Model 3 and simplifying its business model and expense structure,” the analyst wrote.
Indeed Musk has been expanding on several fronts and two months ago showcased a new model, the Y, which also sparked criticism from investors and analysts firm in their belief that the company should focus on the matters at hand such as profitability and ramping up car deliveries rather than designing new models. Musk has claimed the Model Y—a crossover SUV with a price tag of US$47,000—will sell better than the Models S, X, and S combined but this will take time. Unfortunately, Tesla needs better sales right now.
Steps are being made in the right direction, however. Musk has called for a “hardcore” review of the company’s expenses and has suggested that more cost cuts are on the way. Yet cost cuts on their own won’t do the trick. Perhaps it really is time for Tesla to focus on its immediate business, which is selling cars that have already been made and making more if there is demand for them.
By Irina Slav for Oilprice.com