For Tesla Inc (NASDAQ:TSLA) stock, it’s all about confidence. The contentious bull/bear argument over the TSLA stock price is a battle over what profits will be next decade and the decade after. That’s a big reason why I’ve long cautioned humility from investors on both sides of the debate.
There’s still a long way to go for the Tesla story. But, of late, I’ve become increasingly convinced that investors are starting to lose confidence in both TSLA stock and CEO Elon Musk. Too many promises have been broken, most recently relative to Model 3 production targets.
And it’s worth pointing out that TSLA’s 20%+ pullback over the past two-and-a-half months began with a downgrade from an analyst at Jefferies. Slowly, the Street seems to be turning on Tesla stock and investors are following. The TSLA stock price is holding at support just over $300. But breaking through that support suggests another 20% downside, and I believe that type of move is on the way.
So much of the optimism behind Tesla stock is tied up with its charismatic CEO Elon Musk. Then again, so is much of the pessimism. To Tesla bulls, Musk is a visionary set to transform the world’s energy usage. To some bears, Musk is little better than a snake oil salesman, whose promises often aren’t matched by reality.
Recent developments might be impacting Musk’s reputation. A Rolling Stone cover story had some revealing passages, but also raised some questions. Musk’s characterization of TSLA stock short sellers as “jerks who want us to die” might raise some hackles among hedge funds and other institutional investors.
At the least, it seemed an unfair charge given that Tesla is burning cash while its stock is dearly valued, as Musk himself admitted less than five months ago.
Add to that this week’s announcement, which many investors initially thought was a joke, that Tesla is going to send a Roadster to orbit Mars, and some investors might start questioning Tesla’s leadership. With Model 3 production behind schedule, shouldn’t Tesla be shipping cars to Earth-bound customers first?
Wall Street probably will have a little say on Tesla’s long-term valuation. But until Tesla generates consistent profits, it will have a big impact on how the stock trades. And it does look like analysts are losing confidence. The consensus target is $310, only modestly above current levels.
And the most recent firm to turn bearish is JP Morgan Chase & Co. (NYSE:JPM). Analyst Ryan Brinkman cited a laundry list of risks, including continuing Model 3 production problems, the end of a federal tax credit, competition and long-term margin concerns.
The thesis seemed to focus on 2018, with further Model 3 delays and a need for yet another equity offering potentially pressuring the TSLA stock price. From a short-term standpoint, Brinkman makes a good case. Investors clearly are more bullish on Tesla’s competition.
General Motors Company (NYSE:GM) stock has gained more than 20% just since late August. Ford Motor Company (NYSE:F) has bounced 20% since reaching a four-year low that same month. Toyota Motor Corp (ADR) (NYSE:TM) sits just off a two-year high.
The uber-bullish case for TSLA stock relies on it being not merely a leader in electric vehicles but the leader. And the longer Model 3 production takes, and the more targets are missed, the better chance for that competition to catch up. Clearly, analysts are getting worried. Again, it’s all about confidence.
There’s simply a lot of near-term risk facing Tesla stock. Optimism from the semi rollout has quickly faded. Competition is catching up. Tesla still is burning cash and most likely will need more next year.
That’s a lot that could strain investor confidence, and I’m not sure what Tesla has to answer its critics in the near term. Ramped Model 3 production would help, but Tesla still will be behind schedule. Long-term margin concerns aren’t going away.
The solar business isn’t contributing as much as perhaps hoped. The solar roof tile product was supposed to be ready by the end of the year. But Musk said on the Q3 call that it was still “going through the validation process.” The rest of the solar business is declining.
Again, none of this dooms Tesla long term. But it raises significant short-term problems. And for a stock trading basically on confidence, those problems can have a big impact.
As of this writing, Vince Martin has no positions in any securities mentioned.