Shares of Tesla Inc (NASDAQ:TSLA) just hit a new high- but could the sun soon set on Elon Musk’s Tesla empire? Tesla has always been a volatile stock, enticing short-sellers from the cracks. Conversely, the bulls charge on back of Musk’s lofty vision for the company. After all, the electric car giant was not built on a throne of coloring within the lines. Tesla backers are a particularly loyal group, as they flock to Musk’s ambitious goals for the company and a brand that carries with it a certain level of prestige. Even the legacy of champions one day can dim, and the polarizing electric car giant faces three key reasons why its empire could eventually topple:
- The race heats up for the top of the electric car maker leaderboard. Companies across the globe are vying in the electric car arena, and Tesla could soon have a bigger threat of cutthroat rivalry on its hands. The American giant towers on a reputation hinging on daring new car feats and a reputation that the sheer name of Tesla instills a sense of luxury and pride in the consumer who invests in not-just-any-car. Yet, consider that beyond the pond that first meets the eye is a bigger ocean out there with clashing rivalry whirring in Europe from the likes of BMW, Volkwagon, and Audi.
- Musk needs to prep for price battle. By the beginning of 2018, rumor has it Audi is readying to dish up its forthcoming E-Tron Quattro all-electric SUV. The marketing hyping up Tesla’s Model 3 is a not just luxurious experience, but an affordable one. Can Tesla stand against the flames of pricing opposition should the competition dial back on the expense? Consumers are always looking for the future hot commodity- but if the hip product is available at a more attractive price, they swing for it.
- The big financial picture. Yes, first quarter results proved to be a massive success with the electric car giant yielding its best performance for deliveries yet. Yet, what of initial signs of waning Model S revenue? Tesla achieved a peak hit in the fourth quarter of 2015, but it is a level that hasn’t been seen soaring at that momentum since. Model X sales have also not performed to stellar fashion as was supposed to be a big splash, with underwhelming domestic sales and Europe sales on a downturn just around the corner.
Meanwhile, it is worth posing the question: Might another stock dilution be underway soon? The launch of the Model 3 could be costly for the giant, leading to an operating loss this year. Musk’s brainchild is now on its fourth consecutive year of a net loss circling close to $2 billion. In a game of supply and demand, one cannot turn a blind eye to Tesla’s challenges- even taking under account its powerful legacy. Musk has made a name for going for the big gamble- but for the high rollers, eventually reality catches up to the dream.
Ultimately, the bears point to a gap when considering the cost required to make these technologically advanced vehicles and the reward Tesla reaps at the end of the day. Cash burn could trip up the great Tesla giant soon enough.
The Street seems to express reluctance on betting on the electric car giant, with most analysts predominantly viewing the stock from a cautious vantage point. Furthermore, Tesla shares represent greater downside potential than upside. TipRanks analytics exhibit TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. With a loss potential of 10%, the stock’s consensus target price stands at $274.55.