For Tesla and investors, it's complicated
Tesla's (TSLA) stock jumped more than 6 percent on Thursday, closing at $347.09, as investors cheered the electric-car maker's better-than-expected earnings report. But some of the company's critics aren't joining in the applause.
In fact, analysts at Goldman Sachs (GS) JPMorgan (JPM) and UBS (UBS) all continue to give Elon Musk's company a thumbs-down, reiterating their advice to sell the stock. They argue that the money-loser, whose valuation exceeds profitable incumbent automakers Ford (F) and General Motors (GM), is fraught with risks.
Those skeptics have company. More than 20 percent of Tesla's shares are held by short-sellers, who profit when a stock's price falls. Of the firms that follow Tesla, only three have a "strong buy" or "buy" ratings. Three consider it a "hold." Four rate it as "underperform," while five consider it a "sell."
That doesn't mean Wall Street isn't a fan of Tesla's technology.
"Its products are bold, distinctive, elegant and highly entertaining to drive," wrote JPMorgan analyst Ryan Brinkman in a note to clients. "The company is led by visionary leadership, backed by a management team with solid functional strength. Although both technology and execution risk seem substantially less than was once feared, expansion into higher volume segments with lower price points seems fraught with greater risk relative to demand, execution and competition."
Others such as Gene Munster of Loup Ventures have a more optimistic take.
"People tend to overestimate what happens in the short term, and underestimate what happens in the long term," he wrotes in a client note. "Traditional auto is in a tight spot, dogged by legacy engineering (both on vehicles and manufacturing) and high labor costs. Tesla's biggest challenge is ramping production and, to a lesser extent, the threat of other tech companies (WayMo, Baidu, Apple)."
Here's a closer look at Tesla's results that got many investors so excited.
The bottom line wasn't pretty: Tesla reported a net loss of $336.4 million, or $2.04 cents per share, wider than the $293.2 million loss a year earlier. When some costs are excluded, the latest per-share loss was $1.33, better than the consensus forecast of a $1.82 loss. Revenue more than doubled to a better-than-expected $2.79 billion.
Cash burn: Musk is no slouch when it comes to spending money, which concerns the company's critics. Tesla spent $1.16 billion as it expanded capacity to handle orders for its new Model 3 sedan and boosted battery output. Analysts are expecting the cash burn rate to intensify in the second half of the year as capital spending rises to $2 billion. During the three-month period ended in June, Tesla reported negative free cash flow of $1.15 billion
The Model 3: About 455,000 customers have $1,000 deposits on Tesla's new $35,000 (base price) sedan. Musk, though, unnerved some investors when he said during the company's conference call that it will be in "manufacturing hell" even though he expects to hit a production rate of 10,000 vehicles per week in 2018.
According to Goldman Sachs' David Tamberrino, the initial variants of the Model 3 will be priced around $49,000, which will put it beyond the budgets of many consumers. Also, several luxury automakers are expected to launch rival electric vehicles in coming months.
