While the company is still outpacing the market YTD, Tesla in the recent weeks has underperformed vis-à-vis the broader market. According to Efraim Levy, analyst at CFRA, the company’s stocks have been overvalued for some time now – event though it has met all deadlines with regard to the new Model 3 production. He has given the company a “sell” rating.
CFRA is not the only firm to have qualms about the future performance of the company. According to Bernstein analysts, while the market is still very favorably disposed towards Tesla, a misstep in the Model 3 could led to panic amongst investors. This in turn may even lead to a sharp drop in share prices and even a drying up of cash. Bernstein has given Tesla a rating of “neutral” and have reduced their target price by a huge 23% to $265.
According to Bernstein Analysis
Tesla has been burning through capital. In fact, according to Bernstein’s analysis, the company will have used up $10.6 billion by the end of this year. The company’s naysayers say that this kind of spending is outrageous and unprecedented, but its many supporters back up the spending, saying it is in line with high-growth.
Bernstein analysts feel that Tesla’s $60 billion market valuation is currently riding on investors’ good faith that the company is going to achieve the promised growth rates and that it will be able to ramp up as promised.
Tesla is not the only company in recent times that has been given a higher market valuation during periods of extended negative cash flows. Walmart, Uber, Home Depot and even Netflix all had similar evaluations. The thing is, none of these four companies had such extreme cash burns. Also, companies like Amazon was successful with far less capital. If Tesla does not deliver in the next few quarters, then the expected panic will set in.
The problem is that Tesla may the biggest publically traded company in history to have never generated an annual profit or even a positive cash flow. This is beginning to worry more and more investors. It also didn’t help that the eagerly awaited unveiling of the Tesla Truck was postponed by a month to October.
Jeffries’ analysts also started covering Tesla stocks after the company reached its record high earlier this month. According to their analysis, they expect the electric car maker to continue with their losses through to 2019. This forecast is 12 months more than what other analysts have predicted. According to them, the consensus forecast with regard to Tesla’s cash burn is “too optimistic”.
Tesla’s reputation – and future capital backing – is riding hugely on the Model 3 roll out in the fourth quarter. The brand cannot afford to have low gross margins or even any technical issues as this would press that panic button that is so close at hand.
Tesla stocks gained 60% this year versus the S&P 500’s 12% gains and the Dow’s 13% gain. However, the company has been underperforming in this quarter, with its shares going down by 5.3% against the S&P 500’s 3.4% gain.
There was a bit of a silver lining though, with Morgan Stanley predicting that millions of Tesla cars would be on road over the next few years, which would give the company the boost it would need for its data collection for machine learning training.