After reaching an all-time high in late June, Tesla Inc (NASDAQ:TSLA) shares have been sputtering. Yet the recent weakness still hasn’t been too bad. After all, for the year so far, TSLA stock is nonetheless up a sizzling 74%. This is better than other marque tech operators like Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX).
But investors may still want to be cautious. The Tesla stock price over the years has seen some brutal dives. After all, the company is in a capital intensive industry that has long product cycles. TSLA also develops and manufactures exceedingly complex vehicles.
This does not mean TSLA stock is a good short either. CEO Elon Musk is certainly adept at handling Wall Street.
Instead, when it comes to TSLA stock, the best approach may be to be patient and see if there is a better price at some point. Keep in mind that there are some risk factors that could make this happen. So here’s a look at 3:
TSLA Stock Issue #1 – Competition
When it comes to the EV market, the competition has not really been a factor for TSLA. If anything, this has allowed the company to gain tremendous advantages.
Yet things are starting to change quickly. The fact is that TSLA is starting to scare the conservative auto industry into action as high-end operators like Daimler AG (OTCMKTS:DDAIF) and Volkswagen AG (OTCMKTS:VLKAY) have been investing heavily in EVs. Such companies not only have tremendous brands but also top-notch engineering talent and global infrastructures.
Cowen & Co. analyst Jeffrey Osborne believes that the major European automakers could stunt TSLA – and soon, say by 2019. In fact, he considers TSLA more of a “vanity.” So yes, Osborne has a fairly bearish view on the shares. Consider that the target on TSLA stock is $170.
TSLA Stock Issue #2 – Production
Before the launch of the Model 3, Musk was smart to note that there would be “production hell” for at least six months. It was a clever way of giving himself a pass.
Well, of course, the Model 3 is getting off to a rough start. During the third quarter, TSLA manufactured a mere 260 units!
The company provided vague excuses for the dismal performance, such as “bottlenecks.” But it is important to keep in mind that Musk had recently boasted that production levels for August and September could exceed 1,500.
Granted, the Model 3 is still in the early phases and the vehicle is complex. But then again, if there are ongoing problems and the costs balloon, then there will definitely be more ongoing worries with the Tesla stock price. According to Musk, he has indicated that production could hit 5,000 per week by the end of this year and hit 10,000 per week during the following year. Such forecasts are definitely aggressive and could be setting up TSLA for failure.
The firm currently has a price target of $210 on the Tesla stock price. This implies 41% downside from current levels.
TSLA Stock Issue #3 – Distractions
Musk is definitely a legend of the tech industry. Throughout his career, he has shown an ability to prove the critics wrong.
Yet Musk does seem very stretched right now. Besides leading TSLA, he also is the CEO and CTO of SpaceX. This does not even include his prolific investments, such as in ventures like the Hyperloop.
What’s more, TSLA itself is involved in several ambitious efforts. They include the massive Gigafactory, the SolarCity unit and even EV pick-up trucks (called Tesla Semi’s).
In other words, Musk is dealing with mind-numbing distractions in the midst of the production hell of the Model 3.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.