By Oliver Sachgau and Tom Lavell
“Demand is at the heart of the problem,” analysts led by Adam Jonas said in a note. “Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals.”
Jonas lowered his “bear case” for Tesla shares from a previous estimate of $97, which assumes Tesla misses its current sales forecast in China by about half, and kept a price target of $230. The stock fell 2.6% to $200 in pre-market trading.
Tesla has drawn criticism for weak deliveries. It handed over just 63,000 cars in the first quarter, yet expects to deliver as many as 100,000 cars in the second and four times that for the year. Hitting the full-year target is going to be a “Herculean task,” Wedbush Securities analyst Dan Ives said on Sunday.
Trade DragTo boost demand, Tesla will have to aggressively expand into China, offer lower-priced sport utility vehicles and supply mobility fleets, according to Morgan Stanley’s Jonas. Trade tensions between the U.S. and China and new competitors put this strategy at risk, he added.
“We give Tesla credit for tapping into the world’s largest EV market for a number of years” in China, Jonas said. “We strongly suspect a host of national champions to emerge.”
Tesla has declined 38% since the start of the year and on Monday breached the $200 a share level, before closing 2.7% lower at $205.36. Chief Executive Officer Elon Musk last week called for a “hardcore” review of all the company’s expenses amid warnings of potentially severe fallout from a fatal crash involving the Autopilot driver assistance system.
Musk also raised concerns over the company’s cash burn, referring to Tesla losing $700 million in the first quarter. The carmaker raised about $2.4 billion in capital recently, but Musk said this won’t last long.
Tesla isn’t alone in battling weaker global markets, including China. Germany’s central bank warned the nation’s auto industry -- one of the key pillars of Europe’s largest economy -- is facing more trouble as China’s slowdown deepens. The slump, combined with U.S.-China trade tensions, comes just as incumbent carmakers are spending heavily to develop electric cars.
— With assistance by Lisa Pham
(Updates pre-market trading in third paragraph.).