Tesla shares will fall within the next year to $165, a 46 percent drop from where the stock closed Monday at $308.03 a share, according to BofA research analyst John Murphy. He expects the Silicon Valley company to lose $2 per share over the next year, which is up from the $0.25 loss per share he forecast earlier this year.
“We believe the SolarCity acquisition introduces material risks to the longer-term viability of TSLA, while the recent capital raise only serves to further dilute potential shareholder value,” Murphy said in a note to investors Tuesday.
Goldman Sachs issued similar warnings to Wall Street in February.
Tesla has done good work on producing electric vehicles, Goldman Sachs’ analyst David Tamberrino said at the time, but “our concerns are more near-term oriented with respect to operational execution on the Model 3 launch, an unproven solar business, and cash needs.”
Tamberrino was also worried the company would have to sell stock to raise $1.7 billion in order to make room for a possible loss if the Model 3 doesn’t make the grade. The financial institution ultimately downgraded the company from “neutral” to “sell.”
The complexity of the $2.6 billion Tesla-SolarCity merger almost certainly played a part in BofA and Goldman Sachs’ position. Prior to the merger, auto analysts covered the electric vehicle maker, but now, energy analysts are jumping in the fray.
Neither of these industries are likely to have a logical meeting point upon which to make an accurate forecast. Mixed in will be the energy-storage and battery-manufacturing components of the company.
A disturbingly high number of analysts do not expect the electric company’s value to increase over time. More than 14 analysts expect Tesla’s valuation to fall $48 below its current stock price, the outlets report noted.
Bloomberg’s report suggests analysts are expressing doubt that Tesla can accomplish all of its lofty goals — in particular, they think GM and Ford will eat the fledgling electric vehicle maker alive. It’s the most pessimistic view Wall Street has made on Tesla since the company went public in 2010.
One reason for concern is Tesla’s comparatively poor sales numbers compared to big hitters Ford and General Motors, both of which sell millions of cars a year — the California-based vehicle maker delivered fewer than 80,000 vehicles in 2016.
Elon Musk, Tesla’s chairman, has promised to deliver between 100,000 and 200,000 Model 3s to the market in the second half of 2017. Analysts are dubious.
Musk’s fortunes are intimately tied to the company’s share price, so poor future expectations portend terrible news for Tesla going forward. The company relies on capital to keep its ever-increasing pet projects afloat.
“Tesla is a serial capital raiser,” Adam Jonas, a Morgan Stanley analyst with a bullish view on Tesla, told reporters.
“As such, its ability to sustain its operations and fundamental value is inextricably linked to the very performance of its share price, creating a self-reinforcing momentum.”
Bloomberg also used a technical analysts tool called a Relative Strength Index (RSI) to measure the speed and change of Tesla’s stock health.
An RSI reading above 70, the outlet noted, suggests that a stock is “overbought” and anything below 30 is considered “oversold” — in other words, the happy-medium is in between 70 and 30.
Tesla’s RSI topped out above 83, the highest number analysts have seen on any company in four years. The “sell signal” for a stock occurs when the elevated reading falls back below 70 — that moment happened for Tesla last week.
The market insanity might be a result of the company’s consistent inability to hit delivery marks. Its deliveries were 15 percent less than its forecast and were even lower than the first quarter of 2016, and managed to sell only 14,370 cars, down from the 17,000 it expected to sell, according to a July letter sent to shareholders.
Tesla’s SolarCity merger will almost certainly add a layer of complexity to the forecasts. Back then, only auto analysts covered the electric vehicle maker, but now, energy analysts are jumping in the fray.
Neither of these industries are likely to have a logical meeting point upon which to make an accurate forecast. Mixed in will be the energy-storage and battery-manufacturing components.
Colin Langan, an analyst at UBS, expects the company’s shares to hit about $160 and pick up a “sell” rating on the stock.
“With the closure of the SCTY merger (SolarCity), TSLA (Tesla) is assuming numerous risks. … We continue to believe SCTY is an unneeded distraction during a very challenging launch period,” Langan wrote in a research note.
SolarCity’s bizarre business model will also scare away the most bullish of bulls.
The solar panel provider, which leases its panels to customers, reached long-term lease agreements with homeowners who later defaulted on the mortgages, according to a Feb. 22 report from The New York Times. There could be even more default cases, the report notes.
Murphy also suggested that the dip in shares would lead to a sagging confidence in CEO Elon Musk’s ability to mass produce the company’s stable of electric vehicles.
“While we recognize that TSLA is a growing top-line business, we think it is unlikely that investors would continue to supply the company with incremental low cost capital in perpetuity if investments fail to generate return,” Murphy said.