If there’s one thing that Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk is good for, it’s optimism. TSLA stock owners could use that — they are running out of fresh optimism.
Tesla’s latest announcement is that its vehicles will now be equipped with all the hardware required to make them fully autonomous. TSLA stock dropped more than 2% on the day following the news. There is an obvious explanation.
TSLA Stock Now Has a Brand New Headline Risk
Ford Motor Company (NYSE:F) and BMW have proposed fully autonomous vehicles on the road by 2021. Musk said Tesla will have one of its autonomous vehicles drive cross-country by the end of 2017.
The software required for the trip has not yet been assessed by regulators.
Why did TSLA stock open the next day down nearly 2%? Musk consistently lays out extremely aggressive self-imposed deadlines and targets for Tesla, and the company has a poor track record of delivering on those promises. It seems as if the market is growing increasingly skeptical of Musk’s optimism.
TSLA stock dropped about 2.5% in a matter of minutes on heavy volume on Oct. 18 after the market got wind of an update to Tesla’s Model 3 website.
As recently as Oct. 16, the Model 3 website promised “Deliveries begin late 2017.” This week, the language was changed to “Production begins mid 2017. Delivery estimate for new reservations is mid 2018 or later.”
Tesla was quick to respond with a statement from a spokesperson assuring investors that the update did not reflect any change in the company’s production guidance and referred only to more recent reservations. However, the aggressive selling could be a preview of where the stock is headed if the company misses any of its extremely ambitious Model 3 targets.
TSLA Stock Expectations Are Sky High
With a massive amount of debt and negative cash flow, TSLA stock is all about the Model 3 story.
TSLA stock demonstrated the risk associated with high expectations recently when the company announced it delivered 24,500 vehicles in the third quarter. That number beat even bullish estimates by at least 1,500 vehicles. For a stock that trades solely on projections rather than earnings, beating guidance is about the best news investors can get. However, since Tesla reported the Q3 delivery number, TSLA stock is down 2.4%.
This type of trading can be frustrating for investors who expect positive movement out of the stock following good news. Unfortunately, TSLA stock traders may have become nearly impossible to satisfy at this point.
As Tuesday’s session demonstrated, the risk/reward for Tesla seems way out of balance toward risk at the moment. When it exceeded Q3 delivery targets and reiterated 2016 guidance, the stock didn’t move at all. At the mere hint of a delay in 2017 production, the stock began selling off immediately.
Tesla’s 2017 Outlook
Tesla expects to produce 100,000 Model 3s alone in 2017. Even some auto suppliers and industry experts are skeptical of such an aggressive timeline.
Earlier this year, auto manufacturing consultant Frank Faga said he’d be “really surprised” if Tesla began Model 3 production by July 2017.
Car and Driver is projecting potentially disastrous delays. Back in August, it predicted that the first Model 3s will likely be delivered in the second half of 2019. Yes, 2019.
This week, a Chevy Bolt battery supplier projected that General Motors Company (NYSE: GM) will sell 30,000 electric Bolts in 2017. Even if Tesla hits its Model 3 targets, GM will be hot on its heels.
TSLA stock will likely not respond well to any potential Model 3 delays whatsoever. This recent website confusion is just a small sample of what would happen to TSLA stock if the company fails to perfectly navigate Musk’s minefield of aggressive targets over the next couple of years.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
