What a difference five months can make. In mid-December when Tesla (NASDAQ:TSLA) shares were trading at $366 and in rally mode, Wedbush Securities’ Daniel Ives initiated coverage. At the time, he called it a “buy” and established a price target of $440. Since then Wedbush’s stance on the Tesla stock price has been whittled back to a mere “neutral,” with the target dropping to $230 from $275.
Ives’ chief concern now? Too much focus on offering Tesla owners auto insurance, the development of robo-taxis and other “sci-fi projects/endeavors.” Instead, CEO Elon Musk should focus on making and marketing the Model 3 electric vehicle.
The Tesla stock price fell another 6% on Monday following Wedbush’s latest adjustment and commentary. This worsened Friday’s tumble following news that its vehicles’ autopilot feature was turned on during a 2016 fatal crash of a Model 3. Moreover, there was a leaked memo from Musk explaining to employees the necessity of “hardcore” cost-cutting contributed to the volatility.
For the second trading day in a row, the Tesla stock price made new two-year lows.
All things considered, the market’s reaction toward TSLA stock make enough superficial sense. This is clearly not a company that’s firing on all cylinders, proverbially speaking.
What’s shocking is how quickly Wedbush, along with Evercore ISI Group, changed their tunes about Tesla stock ultimately based on a matter the analyst community should have a firm grasp on before making major calls.
Tesla Stock Outlook, Then and Now
Back in last year December, Ives touted that Tesla demonstrated EV leadership with the Model 3. Further, he proclaimed that TSLA stock was backed by “unmatched brand awareness and technology around battery efficiency.” Plus, the automaker enjoyed an “unparalleled” technology roadmap.
In raising these bullish points, Ives compared Tesla stock to Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN). Based on Wedbush’s financial modeling, the analyst established his $440 price target.
Shortly thereafter, Wedbush’s Ives noted that demand for the Model 3 “looks very strong into 2019 and beyond.”
But in April following the release of Tesla’s disappointing first-quarter numbers, Ives changed his tune. He called the disclosure a “debacle,” citing The Twilight Zone for effect.
Ouch. So much for the company’s “EV leadership” and the “intrinsic value in this innovative technology roadmap.”
In his most recent analyst note, the tune dramatically worsens still. Ives now believes production of between 340,000 and 355,000 EVs this year, versus the company’s forecast of between 360,000 and 400,000 units, is the more “likely path given the current tea leaves in the field around demand.”
According to Ives, Tesla now faces a “quagmire” as it builds out its next flagship factory in Shanghai. The company must ramp up production for the Model 3 amid a growing cash crunch and high expense structures.
All told, reaching the company’s profit targets for the second half of 2019 is “a Kilimanjaro-like uphill climb.”
Things change, to be fair. One big change Tesla went through is January’s replacement of tenured CFO Deepak Ahuja with a relatively inexperienced Zach Kirkhorn. You could also argue that the lingering trade/tariff war is proving a slow, nagging drag.
None of these things are new to Tesla, however.
Tesla’s executive offices could justify the installation of a revolving door. Since early last year, the number of top brass departures is near 100. And, Tesla touted the fact that shiploads of EVs were steaming their way to China in February. The company’s been building an EV factory in China since early December too, well before Wedbush initiated its coverage of Tesla stock. Subsequently, this facility should circumvent steep tariffs as well as high shipping costs.
Demand? Granted, it’s not easy to determine how consumers might feel about a product in the near or distant future. But that difficulty is one reason why Wedbush’s Ives may not want to make bold statements regarding Model 3 demand.
If it’s new EVs coming to the market, that’s fine. There’s no EV on the market now that wasn’t on the horizon then, however.
Profits? Again in December, Wedbush was “looking out a more normalized model with $22 of earnings power by 2025,” and “FCF projections of $5 billion by 2025.” Now, their narrative shifted to cash problems and large expenses.
The December look was more of a long-term view, to be clear. But the forecast still clearly missed the near-term headwind. Indeed, it’s enough of an issue to cut the Tesla stock price target nearly in half in just months.
Moral of the TSLA Story
So if nothing fundamentally changed about the company, here’s the question observers are asking: what did change to prod such a sweeping and rapid shift in the way Wedbush (and Evercore, albeit in a less dramatic way) sees TSLA stock?
One word: Perception.
The way investors of story stocks like TSLA perceive a company can easily influence the way analysts rate and rank a company. Arguably, it should be the other way around. Said more directly, it’s entirely possible Ives was looking to plug into what appeared to be a budding uptrend from Tesla shares in December, given it was rallying when no other stock was. It may have been a subconscious decision, even.
Whatever it was, the 44% slide Tesla stock had made since Wedbush first began its coverage is a harsh reminder: when it comes to TSLA stock, everyone’s just guessing what’s next.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.