Wall Street frowns upon Tesla CEO Elon Musk’s cost-cutting drive
Elon Musk’s latest admonition to Tesla employees — produce more, spend less — is no simple belt-tightening before he asks investors for more cash. It also reflects Wall Street’s schism about the health of the electric-car maker.
Musk urged workers to cut costs and deliver “every car we possibly can” in an August 29 email obtained by Bloomberg News on Friday. Showing positive cash flow this quarter will make it easier for Tesla Motors to raise funds in the year’s final three months to complete the new Model 3 vehicle and its so-called gigafactory that makes batteries.
“We will be in a far better position to convince potential investors to bet on us if the headline is not ‘Tesla Loses Money Again,’ but rather ‘Tesla Defies All Expectations and Achieves Profitability,'” Musk wrote.
“That would be amazing!”
The chief executive officer’s message shows the urgency of making a good impression on Wall Street, where analysts are split about Tesla’s prospects. Of 19 analysts surveyed by Bloomberg, as of Friday seven had a buy rating, seven had a hold, and five recommend selling the shares. Colin Langan of UBS Securities has the lowest 12-month price target, at $160 a share while Charlie Anderson of Dougherty & Co. has the highest, at $500. The stock, down 18% this year, closed at $197.78 at the end of last week.
Fundamentalists cringe at the company’s cash burn, along with the number of projects that Musk has bolted on to the electric-car company. The more bullish analysts tend to believe in the billionaire’s long-term vision of a greener future, with Tesla’s formidable brand leading the way. “Our $160 price target is based on our discounted cash-flow analysis, which is a fundamental valuation,” Langan said in an email. “Broadly, there is a lot of uncertainty in TSLA given ranging views of production, profitability and cash needs. I am cautious on both hitting 2018 and 2020 production targets.”
Langan also said he has reservations about the Model 3, Tesla’s lower-priced sedan, which will start selling at $35,000 before incentives.
Simultaneously, Tesla is building the gigafactory east of Reno,, for battery cell production. On top of all that, Musk is seeking to make Tesla a leader in autonomous driving. And Musk has also proposed acquiring SolarCity.
Even some of Tesla’s traditional bulls have shown wild swings in their price forecasts. Morgan Stanley analyst Adam Jonas had a target of $465 last September. He has since lowered it three times, with the latest coming in June after the SolarCity deal was announced. Jonas lowered his target to $245 from $333, citing the risk of the deal, among other concerns.
Tesla has grown into a formidable brand, particularly among millennials. Model 3 reservations skew young and urban. Doughtery & Co. raised its price target to $500 shortly after the Model 3 reservations came in so high above expectations.
“We continue to believe that demand is there for the Model 3 and any future vehicles, and that’s why we remain bullish,” Anderson said in an email.