Tesla Inc (Nasdaq: TSLA) stock dropped 9.3 percent this week after the company reported more disappointing production numbers in the second quarter. Tesla was six months late in hitting a key weekly Model 3 target, and analysts are now worried about the sustainability of Model 3 production and what it will take for Tesla to turn its first profit.
Tesla finally hit its goal of producing 5,000 Model 3s in a single week, with CEO Elon Musk and the Tesla team pulling out all the stops to make it happen. However, reports of mandatory weekend shifts, 12-hour workdays and workers coming off Model X and Model S production lines to help the Model 3 team have analysts questioning the sustainability of Model 3 production in the near term.
In addition, Tesla’s total second-quarter vehicle deliveries of 40,740 came up well short of consensus analyst expectations of 51,000. On Tuesday, Tesla stock plummeted 7 percent following reports that Tesla is no longer performing “brake-and-roll” testing on the Model 3 at its Fremont factory. Tesla says these tests are redundant and that every Model 3 undergoes rigorous braking tests, but even Tesla bulls were troubled by the news.
“News breaking that Tesla decided to skip the ‘brake-and-roll’ testing for Model 3 production at its flagship Fremont factory while aggressively ramping up its production to the elusive 5,000 per week [level] is a potential gut punch to the bulls that now worry about sustainability and speed bumps ahead on the Model 3 front,” GBH Insights head of technology research Daniel Ives says.
In addition, Tesla has just three months to deliver on Musk’s pledge that that the company will be cash-flow positive and report its first-ever profit in the third quarter of 2018.
Bank of America analyst John Murphy says there is a lot of risk associated with Tesla’s financial situation at the moment. Despite Tesla’s claims to the contrary, Murphy says Tesla will likely need to raise capital again in the near future.
“We believe this, on top of deteriorating visibility over the timing of generating positive cash flow, could wear on investor patience, and impair TSLA’s key advantage of access to low-cost capital necessary to fund the longer-term vision/plan,” Murphy says.
GBH Insights has an “attractive” rating and $375 price target for Tesla. Bank of America has an “underweight” rating and $180 target for TSLA stock.
