Tesla shares look as if they are about to spontaneously combust in pre-market trading, set to plummet below $200 for the first time in three years, after Wedbush published a research report saying that the company faces a “Kilimanjaro-like uphill climb” to hit its profitability goals for the second half of the year, according to Bloomberg. In the Sunday report, analyst Dan Ives also slashed his price target from $275 to $230 and calling the company‘s current state of affairs a “code red situation”.
Ives had previously been one of the most bullish analysts on the name, but now looks to be the latest sell-sider finally accepting a much needed dose of reality. In his note, he claimed that he has “major concerns around the trajectory of Tesla’s growth prospects and underlying demand on Model 3 in the U.S. over the coming quarters.”
Tesla shares were hit to start the week Monday morning, collapsing 4% in pre-market trading, meandering deep inside margin call territory, and setting up the company to test the key $200 level, the lowest price since December 2016.
On Friday, the stock had already closed at a near 2 1/2 year low, barely over $210.
And as this bad news continues to break for the embattled automaker, Tesla still has not amended its guidance for 90,000 to 100,000 cars delivered in the second quarter, which Ives referred to as a “Herculean task”. Tesla skeptics and short sellers have widely written this guidance off as near-impossible for the quarter. Ives sees annual production coming in at 340,000 to 355,000 vehicles for the year, versus the company’s 360,000-400,000 guidance.
Ives concluded: “Additionally, with a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser-focused on shoring up core demand for Model 3 and simplifying its business model and expense structure in our opinion with headwinds abound.”
As a reminder, the “profitability goals” referred to by Ives are what Elon Musk sold to investors in a recent $2 billion convertible financing. When Musk was reportedly asked on a conference call what he was going to do with the $2 billion he was raising, he casually told investors: “We don’t expect to spend this capital. We expect to fund our activity out of our growing cash flow…”
This statement isn’t just at odds with Ives’ analysis, either. Noted Tesla skeptic, Paul Huettner, recently pointed out on Twitter that the comment stands in stark contrast to some of Musk’s statements made in a publicly leaked employee email this past week.
Elon’s pledge to “not use this money” & “to fund our activity out of our growing cash flow” differs SIGNIFICANTLY from his email, sent just two weeks later on 5/16 where he stated that it will take a “hardcore” effort to break even & be “financially sustainable”. h/t @lorakolodny
— Paul Huettner, CFA (@Paul_M_Huettner) May 18, 2019
All in all, it should be a very exciting week ahead, if rather stormy, in Longsville.
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