Tesla surfboards sell out in a day
Just 200 of the $1,500 boards were available.
Tesla could backfire in the next 12 months, with the stock dropping by more than 30 percent due to the electric-car maker’s inability to turn a profit in 2019 and its need to raise additional capital, a Wall Street firm warns.
The bearish call from UBS comes two days before Tesla reports its latest quarterly results, which the firm’s analyst Colin Langan says will be much weaker than Wall Street expects.
In a research note released Sunday, Langan reiterated his “sell” recommendation and 12-month price target for Tesla of $195 per share, which equates to a drop of nearly 33 percent from its Monday closing price of $290.17.
The bearish analyst also downgraded Tesla’s estimated loss for the second quarter to $3 per share, from his previous estimate for a loss of $1.71. Overall, the consensus of all Wall Street analysts is for a quarterly loss of $2.76 per share, according to Langan.
“We are cautious on Tesla’s second quarter results,” Langan wrote in the report. “Our sell thesis remains focused on cash burn, sustainable profitability, and quality concerns.”
So why, aside from Langan betting that Tesla won’t make money again next year, is the analyst predicting that the stock will shed a third of its value by this time next year?
Short-term pricing boost to fade
Tesla recently changed its Model 3 ordering rules by removing the $1,000 down payment to reserve a car. Under the new system, reservation holders and new customers alike must pay a $2,500 deposit to move their orders forward.
In the short term, Tesla, which has a goal of selling the Model 3 at $35,000 to the masses, is only offering models ranging in price from $49,000 to $80,000 for ones loaded with options, Langan says. The new deposit plan, he says, will drive sales and revenue in the short term as buyers trade up to the more expensive versions.
The benefits of the “pull forward” pricing, however, “will not be sustainable as prices normalize,” Langan says, noting the high price point of the Model 3 compared to comparable vehicles such as the BMW 3-Series ($43,000) and the Mercedes C-Class (around $47,000). “As the (Model 3) price normalizes to the mid $40,000 range, we expect significant margin compression,” Langan told clients.
Need to raise more capital likely
“Tesla will likely need to raise capital by the fourth quarter,” Langan predicted in his research note.
While Tesla had about $2.6 billion in cash at the end of the first quarter, according to Langan, he estimates that the company burned through $900 million in the second quarter, leaving it with more than the $1 billion cushion that it needs.
However, Tesla has about $500 million in debt to refinance by the end of the year and also has roughly $750 million in liabilities outstanding, mostly related to the construction of its Gigafactory in China. These numbers, Langan adds, don’t include higher future expenditures for Tesla’s Model Y and the assembly of the Gigafactory, as well as other future costs.
Bad news piling up
For the most part, Tesla investors have shrugged off the electric-car maker’s string of negative headlines, ranging from CEO Elon Musk’s strange behavior during a first-quarter earnings call with analysts, when he criticized the line of questioning as “boring,” to recent news about cutting 9 percent of its workforce, closing solar facilities, asking suppliers for cash back and assembling vehicles in a tent.
Those are “all signs of financial challenges,” Langan wrote in his report.