The recipe for disappointment on Wall Street is easy: Two measures of confidence and a measure of popular hype, mixed and allowed to rise -- and eventually punched down by reality.
That's exactly what's happening with Tesla (TSLA), a big beneficiary of the recent obsession with mega-cap tech stocks. It enjoyed a 117 percent rise from its post-election low into its late June high, thanks to growing excitement over the Model 3 launch, widespread belief in unrealistic production estimates (second chart below, courtesy of Bloomberg), and the "reality distortion field" surrounding CEO Elon Musk as he touts everything from a Tesla semi-truck to trolling his skeptics on Twitter.
But(chart above). In Thursday afternoon trading, the stock is more than 5 percent lower, or $17.70, to $309.45. It's down 15 percent so far this week and more than 20 percent from its high, returning to where it was in the middle of May. This also qualifies as an official bear market in the stock.
The weakness is the result of reporting disappointing delivery numbers on Monday followed by a bearish analyst note from Goldman Sachs (GS). Perhaps that reality distortion field is finally fading.
Deliveries for the second quarter came in at 47,100, at the low end of the 47,000-50,000 guidance. Production totaled 25,708 vehicles, keeping first-half output until June at about 40 percent of demand on a severe shortfall of its 100 kWh battery pack.
It's do-or-die time for Tesla to ramp up production with the first Model 3s set to be delivered on July 28. Any disappointment, or indication that Musk's aggressive output guidance won't come to fruition, could result in a nasty "sell the news" dynamic.
Amid all this, Tesla's competition is also heating up: Just yesterday,it's moving to electrify its entire lineup starting in 2019.
As a result, Goldman Sachs cut its price target on Tesla shares to $180 -- representing more than 40 percent downside from here -- on worries demand for the company's high price Model S and Model X vehicles is likely plateauing.
A price target cut of that magnitude is likely to discharge even more of the excitement that had built up around Tesla as an investment.