Investors have every right to expect the companies they put their hard-earned money behind to execute on their plans. Today, an analyst at Barclays downgraded Tesla Motors Inc (TSLA) stock because he doesn’t think Tesla will meet its own delivery guidance for the company’s newest electric SUV, the Model X.
In fact, Barclays’ Brian Johnson believes TSLA will “significantly” miss on this year’s delivery guidance, and that the exciting electric car company may not even be able to launch its highly anticipated, mass-produced and relatively affordable Model 3 on time.
TSLA stock was down as much as 3% on the downgrade — Barclays currently rates TSLA “underperform” and gives it a $180 price target — and with shares now hovering around $220, Tesla is off nearly 20% from its September peak around $270.
It’s true that the opinion of one analyst doesn’t make or break a company. But it’s the flurry of analyst downgrades in recent days that worries me. There are simply too many things that need to go perfectly to plan for TSLA stock to make sense at these levels.
Too Many Unknowns
At the end of the day, investors are making a lot of assumptions when they buy TSLA stock — at 93 times forward earnings. Chief among those are:
- Tesla’s Model X deliveries will be up to par
- Tesla’s Model 3 will arrive on time — and be a hit
- TSLA will also be able to transform the energy market with its Tesla Powerwall — a $7,000 electric generator that’s not financially feasible for the sane among us.
- Musk, who is CEO of TSLA, SpaceX, Chairman of SolarCity (SCTY), designer of the Hyperloop, and who has ambitions to colonize and eventually die on Mars, will remain focused on driving the TSLA stock price higher.
Morgan Stanley (MS) and Baird & Co. both found these assumptions to be too overwhelming, cutting their price targets yesterday.
Makes perfect sense to me. TSLA has notoriously not been able to reach its own sales goals in China, so the days of assuming it will execute perfectly on everything else it plans to do are long gone — at least for rational investors.
I understand and agree that Musk is a genius, but his brilliance does not preclude TSLA stock from ever being overvalued. In fact, it makes it all the more likely.
Even though it’s a “sexy” stock that investors find hard to resist, stay away from TSLA until we hear some good Model X delivery numbers. And if we don’t? Well, there’s nothing wrong with watching from the sidelines for a while.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
