Shares of electric vehicle/solar roof/home batter backup maker Tesla Inc (NASDAQ:TSLA) are dropping below their 50-day moving average for the first time since early December. That’s worth a loss of nearly 15% since TSLA stock peaked in the middle of February.
The catalyst? Sentiment has soured on concerns about very lofty market expectations for the launch of the Model 3 sedan later this year.
The Bears Are Circling TSLA Stock
The selling intensified in late February after Goldman Sachs analyst David Tamberrino cut TSLA stock to “Sell” and lowered his price target to $185 — which would be worth another 25% drop from current levels.
While acknowledging the company’s leadership role relative to more established automakers in terms of electric vehicle technology, EV adoption with customers and battery manufacturing, his concerns focused on near-term operational execution of the Model 3 launch, the unproven solar business and the rapid free cash burn rate (which is expected to necessitate a capital rate before the fourth quarter of the year).
The capital expenditure needs to get the Model 3 produced — and ramp production of the existing Model S and Model X as expected — is large totaling $3 billion in Tamberrino’s estimate.
In his note on TSLA stock, he also identifies and charts the “Tesla hype cycle,” shown below, as showing how shares have been rangebound between $180 and $280 over the last few years, with the ups and downs associated with hype surrounding new products followed by lamentation on delays, lowered delivery targets and capital raises.
The delivery expectations on Wall Street are simply untenable. The company delivered 22,200 vehicles in the fourth quarter and 76,230 for 2016, missing expectations. Yet the Street expects Tesla, somehow, to deliver 1,000,000 vehicles per year by 2020 despite a still burgeoning EV charging network, reports of hedge funds stockpiling battery materials and the fact TSLA hasn’t even completed a beta prototype of the Model 3.
The company will next report results on May 3 after the bell. Analysts are bracing for a loss of 67 cents per share on revenues of $2.4 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers. Redeem by clicking the links above.