Following the latest reports the electric vehicle company Tesla
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Wall Street analysts are cutting their target prices for the stock. Analysts are mostly concerned about demand.
For example, Morgan Stanley analyst Adam Jonas lowered his target price for Tesla to $330 from $350 per share, but he still maintains a buy recommendation on the stock. In any case, the new target price is also still 50% above the current price of $220 per share where the stock is currently trading. According to the analyst, the strong dollar is hurting Tesla sales. (Sales in other currencies such as the euro are worth less in dollars).
In addition to the foreign exchange issue, Jonas is also concerned about demand. “Many of our customers do not believe that Tesla is vulnerable to a slowdown with consumers due to the company’s unique position in the electricity market and the general lack of supply,” Jonas wrote. But he believes otherwise: “Its growing size of Tesla today and in projections makes it susceptible to what could be some deep swings in consumer power.”
Following the lowering of his forecast, the average price target of the analysts fell to $285 from $301, the average of the analysts before the reports were published.
The least optimistic:
On the other hand, Bernstein analyst Tony Sacconaghi is more pessimistic. He gives a sell recommendation to Tesla and gives it a price of $150 on the stock. According to him, he fears that the demand for Tesla vehicles in China is diminishing, and also noted the company’s decision to lower the prices of its vehicles in the country by 9%.
Declining demand is a big long-term problem, but that’s probably not what’s driving some of the recent short options trading activity on Tesla. On Monday, 144,858 Tesla put options for expiration this Friday, with a strike price of $200, changed hands.
This is a big jump for an option that will go into the ‘money’ only if the Tesla share price closes below $200 per share on Friday, meaning a 10% drop in relation to the current price, and this while the markets are rising in the meantime.
Holding these contracts seems risky. But traders seem to be betting that Tesla’s share price will fall as Elon Musk is expected to sell a large chunk of stock to finance the Twitter acquisition. Musk only has a few days to sell what could be $5-10 billion in Tesla stock. As you may remember, he has already sold about $15 billion in Tesla shares since he proposed to buy Twitter and in the meantime raised a total of $30 billion to buy it.
So true, a big share sale can lower stock prices for a while, but it’s hard to predict how much it will lower, especially when the whole market knows that Musk’s share sale is coming. Moreover, Musk can raise money in other ways besides selling Tesla shares. It can use additional equity from third parties, loans and more.
Tesla cut prices in China and missed in the reports it published last week
As mentioned, this week Tesla unexpectedly cut the price of its Model 3 electric vehicle in China to 265.9 thousand yuan ($36.6 thousand) compared to 279 thousand yuan, a 6% decrease in the price of the vehicle. In the more expensive model, Y, it lowers the price to 288.9 thousand yuan, compared to 316.9 thousand yuan before.
Last week Tesla reported the results of the third quarter. The company reported revenues of approximately $21.45 billion, while the market expected higher revenues of approximately $22.09 billion. Bottom line, the market expected a diluted profit of about $1.01 per share, while in practice Tesla reported a profit of $1.05 per share.
But if investors were hoping they would allay concerns that had grown since the company released its second-quarter results three months earlier, they were disappointed. While profit exceeded expectations in the third quarter, deliveries, sales and profit margins fell short of expectations.
Tesla’s stock is now trading at a price of $220 per share and at a value of $690 billion, when at its peak a year ago it traded almost double and since then it has lost 47% of its value.