Lately, I’ve been bearish on Tesla Inc (NASDAQ:TSLA). But perhaps now is a time to think about a purchase? Well, TSLA stock is certainly cheaper. Since September, the shares have dropped from $385 to $303.
But I still think there are significant risks for shareholders — and yes, the TSLA stock price remains vulnerable.
Just look at the latest earnings report. The net loss ballooned to $619 million, which was the largest in its history. Even when making adjustments, the loss was still much larger than the Street was expecting — that is, it was $2.92 per share versus the consensus of $2.28 per share.
However, the most jarring news — at least for TSLA stock — was that the production of the Model 3 would hit 5,000 units per week by late Q1, not the prior estimate of Q4. The company also did not provide any guidance on when the levels would hit 10,000 per week. The prior guidance was that TSLA would reach this during sometime in 2018.
Something else to keep in mind: Back in March, the company boasted it would produce 500,000 vehicles in 2018. In other words, this seems kind of like a pipe dream.
So what’s going on? According to the TSLA earnings call, it appears that the manufacturing of the battery packs has been a challenge. In fact, the company’s director of battery engineering has departed to launch his own competing venture.
It’s true that the company has had difficulties with earlier models. Let’s face it: CEO Elon Musk has a penchant for pushing the cutting edge, which has fueled TSLA stock. But it also means that there are risks of delays and potential flubs.
As for the Model 3, there will be a solution. But it is far from clear how long it will take. If anything, the company is essentially giving more time for rivals like Daimler AG (OTCMKTS:DDAIF), General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F) and Volkswagen AG (ADR) (OTCMKTS:VLKAY) to catch up. These automakers have been spending aggressively in making a play for the electronic car market as well as self-driving vehicles.
Another nagging issue, which should be a major worry for TSLA stock, is that Musk is stretched. Consider that he is also the CEO and CTO of SpaceX and also is an active angel investor, with ventures like the Hyperloop. Meanwhile, TSLA itself is involved in various businesses, which could prove to be distractions. They include the SolarCity and EVs for pick-up trucks.
Bottom Line On TSLA Stock Price
TSLA stock certainly defies traditional valuation metrics. Keep in mind that the shares trade at 5 times revenues.
Granted, investors are generally taking a long view of things. TSLA has the potential to transform the transportation and energy industries, which are massive opportunities.
But in the near-term, there is quite a bit of turbulence. This is reflected in the estimates from Wall Street analysts. For example, the lowest price target is from Cowen & Co.’s Jeffrey Osborne, who believes that TSLA stock should trade at $170. Then there is Nomura Instinet’s Romit Shah. His price target? It’s at a hefty $500.
This gap really is an indication of the overall uncertainty about the business. And yes, this leads to the volatility in the TSLA stock price. So if there are more delays or complications with production, it’s really hard to make a bull case for the shares — at least for the next couple quarters.
Tom Taulli is 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.
