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Tesla Inc. (TSLA) had a turbulent year in 2019. A catastrophic first quarter loss, followed by a mediocre estimate of April shipments, put Tesla's growth story on vital support.
Growing signs that demand has peaked, despite numerous price declines on Tesla's range of vehicles, have pushed even the most optimistic analysts on Wall Street into a bearish stance.
Investors should take into account the warnings of Wall Street. The wind of change is blowing and the feeling seems to be darkening from here.
Wedbush: A problem of focus
For years, few analysts were as optimistic about Tesla as Daniel Ives of Wedbush. Yet, when the disaster of first quarter profits was reported, Ives saw the inscription on the wall:
Tesla's evolving demand is evolving rapidly and the company has unfortunately not adapted to the changing landscape of electric vehicles (especially in the United States). Well thought out marketing and distribution logistics is essential to manage this difficult and complex process for customers, employees, and investors. For 20 years we've been covering tech stocks in the street, and we consider this quarter to be one of the biggest challenges we've ever faced. Musk & Co., in an episode coming out of Twilight Zone, pretends that demand and profitability would come back as if by magic. in the history of Tesla. "
The prospects at Wedbush have only dimmed since. According to Ives, the recent turmoil and strategic developments of CEO Elon Musk represent a dangerous loss of concentration:
With a red code situation at Tesla, Musk & Co. is expanding its business to insurance, robotics and other science fiction projects / initiatives, while the company should instead focus on laser-boosting the basic demand for Model 3 and the simplification of its model and expenditures. the structure in our opinion with headwinds abound. "
In light of these developments, Wedbush lowered its price target from $ 275 to $ 230. It is difficult to argue with the logic of Ives. Tesla's robotaxi projects seem to be only a fantasy, while even Warren Buffett has questioned his dubious plan to release an insurance product. Tesla has clearly decided to focus its attention on a bright and distant future, rather than tackling the difficult problems it faces today. This does not bode well for the company or its stock price.
Morgan Stanley: a demand problem
Another longtime bull, Adam Jonas of Morgan Stanley, also took into account Tesla's growing problems. Jonah has moved closer and closer to the bear camp in recent months, but his latest investment grade is in deep relief from his previous entries in terms of pure pessimism. According to Jonas, Tesla's assessment is far from fundamentals:
Demand is at the heart of the problem. Tesla has become too big in relation to short-term demand, which has put a strain on fundamentals. "
For most of 2018, analysts subscribed to Musk's story that Tesla was subject to supply constraints, that is to say, it could sell, however, many cars that it manufactured at its own way. The sharp drop in shipments in the first quarter and April highlighted this false premise. As a result, Jonah now sees serious demand problems.
In addition, Jonas is now worried that Tesla has gone from a history of growth to a history of "distressed credit and restructuring." Even so, Jonas has resisted the urge to change his base price target set to $ 230, although he has reduced his selling price target from $ 97 to $ 10.
Baird: a problem of credibility
Even when Wedbush, Morgan Stanley and other long-time bullish analysts turned to Tesla after the first-quarter debacle, Robert W. Baird's Ben Kallo held up well. In a note to investors in April, Kallo proposed another comprehensive endorsement:
We continue to view Tesla as a major disrupter and believe that new products, production ramps and the further development of innovative technologies will drive growth. While we recognize that improving the atmosphere may take time, we believe that over time, stock prices will increase as the company implements its growth strategy. "
Still, Kallo was forced to bend his knee in front of an increasingly troubling reality, pushing his price target from $ 400 to $ 340. Although his haircut is certainly important, Kallo remains in the bull, preferring to attribute recent stock weakness to messaging problems rather than fundamentals:
Credibility issues, messages / communications and the significant noise generated by TSLA have prevented additional buyers from accessing the market. "
Musk's personal credibility has certainly been the subject of increased scrutiny. But ignoring the obvious signs of collapsing demand is hurting investors. Kallo will soon have to face this reality.
Investor's point of view
The turn of Wall Street against Tesla has been a long time coming. Many analysts refused to recognize growing demand problems as long as they did not end up face-to-face. While the second quarter aims to provide little improvement, investors should expect further damage and defections in the bear camp.
Even at a very low price of action, Tesla is still considered a growth stock. While the second quarter seems to be missing again, investors should prepare for another downward correction in the near future.
Disclosure: I am / we are TSLA short. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose shares are mentioned in this article.
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