Tesla Inc (TSLA): A Short Seller’s Lottery Win? Analysts Spotlight Musk’s Biggest Headaches

A bear and a cautious analyst from the sidelines look at an uphill battle facing Tesla.


Tesla Inc (NASDAQ:TSLA) may have amassed 74% in value throughout 2017, but being late on both Model 3 deliveries as well as a sluggish electric semi-truck time table have cost the electric car giant nearly 9% in the matter of a month’s time. Short sellers are thrilled to be counting $160 million, as CEO Elon Musk’s worries translate richly to short sellers’ gains.

Barclays analyst Brian Johnson believes short sellers are getting their big break, a prospect that has no expiration date between Tesla’s stumble-after-stumble since September. Writing in a bearish research note yesterday that all semi-truck buzz “is at least a short-term trading opportunity to ride Tesla down,” Johnson finds that even a semblance of an “iPhone moment” the Street had been biding its time to see “appears less certain” now.

As such, the analyst reiterates an Underperform rating on TSLA stock with a $210 price target, which represents a close to 39% downside from where the shares last closed. (To watch Johnson’s track record, click here)

Johnson explains shares will keep coming under hot water, underscoring, “With the hype cycle around Tesla Semi delayed for another month, we expect the stock to come under pressure in the short term, while looking for any larger break in investor confidence that could lead the shares closer to our $210 price target.”

When it comes to middle-of-the-road investors, who the analyst dubs as “purple pillers,” keep in mind this is a far “more realistic crowd” than the bulls, a.k.a. “blue pillers,” noting the realists “generally don’t believe the blue-sky Tesla scenarios proposed by blue pillers (in which Tesla will sell several million units a year, while also leading in other business opportunities – e.g. battery storage).”

“However,” Johnson acknowledges, “they recognize that Tesla stock is driven by a substantial number of uber-bull investors who believe in these scenarios,” not discounting that Musk’s legendary empire was built on the back of lofty bullish confidence.

“So when faced with challenges to the veracity of the ramp – often encapsulated in tweets, as opposed to the more conservatively written and compliance/legal friendly versions of the quarterly shareholder letters – there could be some loss in confidence,” contends the analyst.

Bernstein analyst Toni Sacconaghi is less pessimistic than a bear like Johnson, but nonetheless acknowledges Tesla’s fresh Model 3 sedan could be a gamble in terms of profit margin. In a 112-page “black book” jumbo analysis on the electric car giant, the analyst finds this tech player a tricky one to watch. On one hand, Sacconaghi is quite confident on the electric vehicle market opportunity in the bigger picture, believing Tesla has an upper hand to battle in an arena that could comprise 60% of the market within 33 years.

That withstanding, “for hyper-growth companies, delivering healthy gross margins is critical,” the analyst argues, pointing to two overarching concerns for the company: “At a high level, we struggle with two simple facts about Tesla and the Model 3: First, Tesla only has ~25% gross margins (and makes no money) on its existing US$100,000+ Model X and Model S offerings, while competitors at similar price points likely have 40-50% gross margins and operating margins of 20%+. The upshot is that it is difficult to see Tesla enjoying 25% gross margins on the lower-priced Model 3, particularly since competitors have dramatically lower margins on their lower-priced offerings. Second, we believe that Tesla total Model 3 powertrain costs (battery + drivetrain) will likely amount to US$11,000+ vs. a typical ICE powertrain of US$3,000-US$5,000. In other words, all else being equal, Tesla is ~US$6000+ more expensive to produce, and will have smaller scale than its competitors.”

With Tesla’s Model 3 looking at potentially rounding out 70% of the company’s total production in 2018, profitability is not a side note for this electric car giant- especially not when Musk has bulls hoping for a year in counting for a 25% gross profit margin.

Therefore, the analyst maintains a Market Perform rating on TSLA stock with a price target of $265, which represents a just under 23% decrease from where the shares last closed. (To watch Sacconaghi’s track record, click here)

Most of Wall Street is tossing and turning right there with Saccongahi (and not leaping to the bears with Johnson) on Musk’s brainchild, as TipRanks analytics reveal TSLA as a Hold. Out of 21 analysts polled by TipRanks in the last 3 months, 6 are bullish on Tesla stock, 7 remain sidelined, and 8 are bearish on the stock. With a loss potential of nearly 8%, the stock’s consensus target price stands at $316.94.TSLA analyst ratings chart.