Tesla (TSLA) stock tumbled nearly 9% Friday morning as Wall Street came down hard on the company. The reason? The electric car giant said it is planning to cut full time staff by 7% — about 3,400 employees. Tesla also disclosed that it managed to eke out a profit in the fourth quarter, but a narrower one than the third-quarter profit it reported in October. CEO Elon Musk said the company will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.
Wedbush analyst Daniel Ives commented, “The focus of investors this morning will be on the 4Q profit comments; some bulls were hoping for a stronger EPS print despite the delivery miss and importantly the headcount cut (~7%) as there are clear challenges going forward on production, delivery targets (with Europe and Asia front and center), and sustainable profitability for 2019 and beyond. Tesla is entering a “fork in the road” situation that will ultimately define the future of the company for years to come as with Model 3 production ramping on the mid-tier and base models on the heels of EV tax credits rolling off in the US which will pressure demand. Helping neutralize the expected US softness will be Europe and Asia demand with deliveries in Europe expected to hit the ground in late Feb/early March once homologation and other approvals are officially done. The knee jerk reaction to this morning’s blog post will clearly be negative from the Street’s perspective as there will be more questions than answers until the company formally reports earnings/guidance in early February. That said, while headwinds are abound on a number of different fronts, we continue to believe Tesla will be able to emerge from the next 12 to 18 months a stronger, profitable more product diversified (geographically and price points) EV company helping lay the groundwork for Model 3 as a linchpin of growth going forward into 2020 and beyond.”
All in all, Ives reiterates an Outperform rating on Tesla stock, with a price target of $440, which represents a potential upside of 27% from where the stock is currently trading. (To watch Ives’ track record, click here)
But the Street does not share this optimism. Right now, Tesla stock has a Hold analyst consensus rating with 9 recent Buy ratings. This is versus 8 Hold and 8 sell ratings. Meanwhile, the $333.57 price target suggests about 4% downside from the current share price. (See TSLA’s price targets and analyst ratings on TipRanks)