Is Tesla Motors Inc (NASDAQ:TSLA) stock veering dangerously toward an overrated status and value? Is CEO Elon Musk’s vial of liquid luck finally drying up?
While the electric car giant’s Gigafactory has become officially operational, a great way to jumpstart 2017, the company also met with massive obstacles in 2016. Production snafus led to underwhelming fourth-quarter results that failed to meet CEO Elon Musk’s lofty 80,000 vehicle delivery goal. Bad publicity flashed after a driver found himself in a fatal car crash while driving the Model S using the new autopilot feature.
Even loyal investors could have found themselves wavering by the end of last year.
Hopes for resurgence seem to be contingent on the Model 3. Musk has once again put out an ambitious goal for his company: 500,000 deliveries this year and 2018. The price? $35,000.
The Tesla team, as usual, approaches this with great confidence, highlighting the 400,000 deposits already placed for the car. Perhaps it’s Musk’s way to further redirect focus and restore morale amongst TSLA enthusiasts and shareholders.
Yet, for context, by the end of 2016, TSLA produced roughly 84,000 vehicles- which even from an optimistic perspective renders Musk’s objective of producing 500,000 vehicles each these next two years a dark horse running a long odds race.
Analysts like Adam Jonas from Morgan Stanley and Brian Johnson from Barclays are anticipating not only is this target a wager Musk might not be able to afford to lose, but they’re betting in the exact opposite direction: a probable turnout of no Model 3 cars when the giant closes out 2017.
Speaking of which, what happens to the 400,000 consumers dauntless enough to bet on a projected $35,000 vehicle if the car’s production process surpasses original calculations? Tom Taulli at InvestorPlace points to hedge fund manager Mark Spiegel who predicts Tesla’s alleged salvation and key focus for 2017, the Model 3 that carries a $35,000 price tag in no way can be produced for under $48,000 per vehicle.
Musk, with his penchant for the formidable-to-meet objectives, is not prone to casting a cavalier glance when it comes to lost dollars. If we look at the situation as a basic numbers and odds game, what seems to be forthcoming in the cards? A sudden escalation in Model 3 prices- a spike Musk will use to make up the difference, but the very same spike that could deter a percentage of that 400,000 to bolt.
This will hit as a particularly tough blow for the company, considering Musk counts deliveries as his metric for success- not advanced payments.
Therefore, reason number one to short TSLA stock: a likely enormous miss in expectations in the near-term for the Model 3, which Musk does not help ease with his forecasts that shoot too far beyond the sun.
Secondly, direct your attention to a man named Mateo Jaramillo- once Vice President of Tesla Energy who is hightailing away from Musk’s empire. Notably, this follows a string of executive departures, a year in which the giant has seen its Vice President of Global Communication, Vice President of Product Technology, Vice President of Finance and Worldwide Controller, Vice President of Production, Chief Information Officer, as well as Vice President of Manufacturing all jump ship.
The reasons for these departures remain elusive. Yet, together, they paint a striking picture of a CEO bent upon upping the ante in a game of moxie he just cannot seem to win- and perhaps a team who no longer sees these blunders as a product of Musk’s ingenuity.
Third, let’s talk about the alleged positive in Musk’s corner: an up-and-running Gigafactory. Musk’s vision was to create a lithium-ion battery factory in collaboration with Panasonic and other partners to beat 2013’s global production of lithium ion batteries yearly at a substantially more affordable cost.
However, if you look to China, where battery prices are experiencing a rapid descent, will the expenses of the Gigafactory investment prove to be worthwhile in the end? Musk certainly will not be able to partake in the advantageous battery cell situation in China due to legal limitations from his alliance with Panasonic- a consequence of bringing his Gigafactory pipe dream to reality.
Ultimately, what we have is a flourishing list of reasons for a bearish case- multiplying more rapidly than Tesla’s multiple, trading over 70 times current earnings per share prices.
Out of the 15 analysts polled by TipRanks (in the past 3 months), 6 rate Tesla stock a Buy, 6 rate the stock a Hold and 3 recommend to Sell. With a potential downside of nearly 6%, the stock’s consensus target price stands at $230.73.
Disclaimer: The author has no positions in the stock mentioned. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.