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Why Tesla (TSLA) Stock Fell Today & How Much Worse It Might Get
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Shares of Tesla (TSLA - Free Report) sunk Monday on the back of a UBS analyst note that said the electric car company’s stock price could fall by more than 30% over the next 12 months as it is forced to seek outside funding.
UBS Note
UBS analyst Colin Langan reaffirmed his “sell” rating for Tesla stock and predicted that shares of TSLA could fall by over 30% because the car company won’t be profitable in 2019. The analyst provided a $195 12-month price target, which marked a 34% downside from Friday’s closing price of $297.18 per share.
Langan also projects that Tesla will report lower-than-expected second-quarter earnings results, which are due out Wednesday. "We are cautious on TSLA Q2 results … Q2 results [will] likely highlight cash flow and profit challenges," Langan wrote in a note to clients. "The market should not ignore fundamental headwinds that persist with regards to TSLA's Model 3 profitability, stationary storage, and solar. … [W]e believe TSLA will eventually need additional outside funding."
The analyst lowered his Q2 earnings forecast from a loss of $1.71 per share to $3 per share loss. This estimate comes in worse than our current Zacks Consensus Estimate that calls for an adjusted loss of $2.70 per share. Meanwhile, Langan raised his third-quarter projection based on higher price points for current, higher-end Model 3 orders, but also lowered his fiscal 2019 estimate to a per-share loss of $1.65, down from a loss of $1.15 per share.
"We do not see sustainable profitability in the second half; however, given the higher priced initial mix, a Q3 profit is possible if TSLA can average production of over 3k/week," Langan wrote. "We expect margins to correct in 2019 as the mix normalizes toward a long term average. Our Sell thesis remains focused on cash burn, sustainable profitability, and quality concerns."
More Bad News
The UBS update comes after reports last week that said Tesla has asked multiple suppliers for cash refunds on what it refers to as a meaningful amount of money. Tesla noted that the refunds, some of which go back to 2016, are essential to the company’s continued operations.
The EV firm also said that the payments would be viewed as a type of investment in Tesla in order to remain on track for long-term growth. "It’s simply ludicrous and it just shows that Tesla is desperate right now," veteran manufacturing consultant Dennis Virag told the Wall Street Journal. "They’re worried about their profitability but they don’t care about their suppliers’ profitability."
The refund news is part of a larger Tesla push to reach its own self-imposed production and profitability goals. Tesla CEO Elon Musk has said he expects the company to turn a profit in the second half of 2018. The refund requests also follow Tesla’s plan to cut 3,600 jobs or roughly 9% of its workforce.
Furthermore, shares of Tesla have slipped since the company finally reached its Model 3 production goal of 5,000 per week. Investors are nervous that Tesla had to divert too many resources to reach its production rate and don’t see how the firm can sustain it going forward without making drastic improvements and taking on more debt.
Before Monday’s dip, shares of Tesla were down nearly 10% over the last year, which comes in far below the S&P 500’s nearly 15% climb. Tesla’s situation becomes even more worrisome as established automakers, such as General Motors (GM - Free Report) , Volkswagen , Ford (F - Free Report) , and Toyota (TM - Free Report) , dive further into their own electric vehicle futures.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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Why Tesla (TSLA) Stock Fell Today & How Much Worse It Might Get
Shares of Tesla (TSLA - Free Report) sunk Monday on the back of a UBS analyst note that said the electric car company’s stock price could fall by more than 30% over the next 12 months as it is forced to seek outside funding.
UBS Note
UBS analyst Colin Langan reaffirmed his “sell” rating for Tesla stock and predicted that shares of TSLA could fall by over 30% because the car company won’t be profitable in 2019. The analyst provided a $195 12-month price target, which marked a 34% downside from Friday’s closing price of $297.18 per share.
Langan also projects that Tesla will report lower-than-expected second-quarter earnings results, which are due out Wednesday. "We are cautious on TSLA Q2 results … Q2 results [will] likely highlight cash flow and profit challenges," Langan wrote in a note to clients. "The market should not ignore fundamental headwinds that persist with regards to TSLA's Model 3 profitability, stationary storage, and solar. … [W]e believe TSLA will eventually need additional outside funding."
The analyst lowered his Q2 earnings forecast from a loss of $1.71 per share to $3 per share loss. This estimate comes in worse than our current Zacks Consensus Estimate that calls for an adjusted loss of $2.70 per share. Meanwhile, Langan raised his third-quarter projection based on higher price points for current, higher-end Model 3 orders, but also lowered his fiscal 2019 estimate to a per-share loss of $1.65, down from a loss of $1.15 per share.
"We do not see sustainable profitability in the second half; however, given the higher priced initial mix, a Q3 profit is possible if TSLA can average production of over 3k/week," Langan wrote. "We expect margins to correct in 2019 as the mix normalizes toward a long term average. Our Sell thesis remains focused on cash burn, sustainable profitability, and quality concerns."
More Bad News
The UBS update comes after reports last week that said Tesla has asked multiple suppliers for cash refunds on what it refers to as a meaningful amount of money. Tesla noted that the refunds, some of which go back to 2016, are essential to the company’s continued operations.
The EV firm also said that the payments would be viewed as a type of investment in Tesla in order to remain on track for long-term growth. "It’s simply ludicrous and it just shows that Tesla is desperate right now," veteran manufacturing consultant Dennis Virag told the Wall Street Journal. "They’re worried about their profitability but they don’t care about their suppliers’ profitability."
The refund news is part of a larger Tesla push to reach its own self-imposed production and profitability goals. Tesla CEO Elon Musk has said he expects the company to turn a profit in the second half of 2018. The refund requests also follow Tesla’s plan to cut 3,600 jobs or roughly 9% of its workforce.
Furthermore, shares of Tesla have slipped since the company finally reached its Model 3 production goal of 5,000 per week. Investors are nervous that Tesla had to divert too many resources to reach its production rate and don’t see how the firm can sustain it going forward without making drastic improvements and taking on more debt.
Before Monday’s dip, shares of Tesla were down nearly 10% over the last year, which comes in far below the S&P 500’s nearly 15% climb. Tesla’s situation becomes even more worrisome as established automakers, such as General Motors (GM - Free Report) , Volkswagen , Ford (F - Free Report) , and Toyota (TM - Free Report) , dive further into their own electric vehicle futures.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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