Tesla Will Drop 40% By The End Of The Year
This isn't my call, but JP Morgan thinks Tesla's stock price will drop 40% by the end of the year. That's a drop when it's all said and done down to $180. They are concern with the valuation of the stock price, free cash flow, their ability to meet Model 3 production goals and increased competition.
Tesla has a "highly differentiated business model, appealing product portfolio, and leading-edge technology, which we believe are more than offset by above-average execution risk and valuation that seems to be pricing in a lot," analyst Ryan Brinkman said in a note to clients Friday.
Additionally, we worry about margin, given the potential for overtime, premium freight, and other expenses employed to ramp production in a seemingly inefficient manner.
Rumors circulated this past week that Tesla has run into a supply issue for the Model 3 due to their ramp up in production and less demand. Tesla has lots and lots full of Model 3 cars now. Tesla is the most shorted stock on the Market, so the shorts are having a ball over this news.
According to Needham & Co. analyst Rajvindra Gill, cancellations for Model 3 orders have picked up in recent weeks. Refunds now outpace deposits. A Tesla spokesperson denied that Model 3 cancellations exceed new orders.
With the volume of deliveries Tesla planned to handle with the Model 3, Elon discussed this issue with investors in early 2017.
The delivery of the cars is where the investment is needed. We need to deliver three or four times as many cars. But we don’t want to have three or four times as many delivery centers. How do we make that delivery process more streamlined, less paperwork, less bureaucracy and get people really ahead of time with really well-produced instruction videos for how to use their car. And well, of course, the best instruction is like not having instructions. And you will actually be able to play all of the instructions needed for your car on your car.”
If JP Morgan is right, price has to get through the monthly demand zone at $250 first. Price penetrated deep the zone in March, found buyers and nearly made all-time highs in June. Their target happens to be the level of the next monthly demand.
What do you think, will JP Morgan be right?
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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by rollandthomas
I sold Tesla at $354 in June for the following reason, the company is burning cash right now with its rapid expansion and is likely to need to raise further finance by issuing fresh stock. This in turn will drive the stock down. To date Tesla is a huge success and has already transformed the automotive market (who wouldn’t want to own a Tesla?). Il be picking it back up at a lower price in the near future, hopefully I’m right and I’m not missing the boat.
Great trade thus far, may want to take some profits near the $280 level.
Il certainly be keeping my eye on it :)
Bold prediction but consistent with the fundamentals. I've heard Tesla had lots of problems with their business model, basically they're running at a loss.
It's hard to bet against Elon, should be interesting.
@rollandthomas
You said you are not a financial advisor but you analysed it like a pro:)
Thanks so much @sharmaakash
Tesla is one of those companies that is tough to bet against given the brand they have been able to achieve. Valuation truly doesn’t make sense but yet it performs much better than other carmakers. Will be interesting to watch in the coming months as it has never been through a bad economy so let’s see how that balance sheet holds up.
Very true, Tesla is a tech company and the valuation is based on future cash flow and profitability. The rest of the year will be interesting.
I'm in the auto industry... You couldn't be further from the truth when you say Tesla performs better than other car makers. In fact, I would ask you to name one way Tesla performs better than other automakers. Tesla is a complete mess of a car company.
Here are some facts:
They have $10B is debt
It starts coming due this year
They hit the 200,000 car sales limit and now the $7500 government subsidies are coming off
In the recent past South Korea had a relatively strong electric car market. When the government incentives came off, the sales went to almost zero. Cars are one of the most price elastic consumer products in the world. If you raise the price, its demand responds in a significant way.
Their market cap is bigger than BMW. Think about that...And BMW is introducing electric cars as well as every other OEM and more than 100 electric vehicles have been announced.
By 2020 the next credit cycle will likely be in rolling in. That means a recession will be around the corner. If Tesla can't make money now, how will they then?
They don't have any free cash flow and their burn rate is still high.
Never seen a stock be as prone to speculation as Tesla, it moves 3-5% in either direction on any given day! A scary stock to still have in the portfolio.
Agree, options are the way to play Tesla.
Very interesting.
I will watch the price even if I don't have it in my portfolio. I'm very curious about it :)
Good luck!
People are so capricious. I think Tesla will lose market share until the Model 3 appears and dazzles hearts and minds, causing the price to rocket back up. Then the usual correction... counter-correction... etc.
Personally I wouldn't trust JP Morgan to predict the colour of their own underwear. If their Boss-Man-In-Charge publicly lambastes Bitcoin and labels it a "fraud", then I'll take whatever they say with a healthy pinch of salt.