Tesla Could Finally Be Ready to Break Down

Tesla (Nasdaq: TSLA) is a company that is in the news quite a bit. The company CEO is one of the reasons that Tesla stays in the news so much.

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  • According to the New York Post, “Tesla CEO Elon Musk took the rare move of showing up to a court hearing Thursday over his tweeting, which the Securities and Exchange Commission claims is out of control.

    Lawyers for the SEC are asking [the judge] to hold Musk in contempt of court for violating an agreement he hammered out with the watchdog last year — and which the judge approved — to have his Tesla tweets monitored.

    … the SEC is asking for the judge to drop the hammer on Musk after he tweeted on Feb. 19 that his electric car company expects to produce around 500,000 Model 3 electric vehicles in 2019 — only to update the tweet four hours later to explain that the 500,000 figure was actually an annualized production rate.

    The watchdog says Musk’s tweet was a violation of his October agreement to stop “disseminating misleading or inaccurate information via Twitter or other means in the future.”

    “Tesla still appears unwilling to exercise any meaningful control over its CEO,” SEC lawyer Cheryl Crumpton told the judge.

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  • Under the agreement hashed out last year, Musk was supposed to stop tweeting about Tesla’s business without a lawyer’s approval.

    Musk agreed to the deal after the SEC cracked down on him for tweeting last August that he had “funding secured” to take Tesla private at $420 a share. The SEC said the claim was fraudulent and noted that it appeared to be an attempt to impress his then-girlfriend, the pop singer Grimes, with a marijuana joke.

    Musk’s lawyers are expected to argue that the SEC is violating Musk’s constitutional right to free speech and that he is a victim of “concerning and unprecedented overreach on the part of the SEC.”

    Musk has also lashed out at the watchdog on Twitter, claiming it is “broken” for demanding he be held in “contempt of court” over a second misleading Tesla tweet.

    The judge responded by telling the parties to “Take a deep breath, put your reasonableness pants on and work this out.”

    Problems Extend Beyond the CEO’s Tweets

    While the tweets can be a problem for the company, there is more for investors to be concerned about. CNBC recently noted,

    “Tesla announced it delivered about 63,000 cars in the latest period, below analysts’ expectations of 76,000 deliveries. Deliveries of the Model 3 midsize sedan, considered a key product for Tesla, were 50,900, below a FactSet estimate of 52,450.

    Tesla also said it produced about 77,100 cars during the quarter.”

    The stock fell on the news.

    TSLA daily chart

    CNBC continued, “The electric car maker also warned that first-quarter income will “be negatively impacted” because of “lower than expected delivery volumes and several pricing adjustments.”

    “Tesla continues to struggle as a ‘real car company,’ with demand collapsing for the tired Model S/X platforms and higher priced versions of the Model 3,” Cowen analyst Jeff Osborn said in a note [after the announcement].

    However, the company reaffirmed its full-year forecast of 360,000 to 400,000 vehicle deliveries in 2019, which could reassure investors given this quarter’s miss. It also said about 10,600 vehicles were in transit to customers, reflecting unexpectedly strong demand in China and Europe toward the end of the quarter.

    The company said one challenge was trying to deliver cars around the world when they were manufactured only in one factory in the San Francisco Bay Area, meaning that production could continue to outpace deliveries. Tesla is planning to build a factory in Shanghai to meet Chinese demand.

    Breaking the numbers down by model, the company said it delivered approximately 50,900 Model 3s and 12,100 Model S and X vehicles. It produced 62,950 of its new Model 3 vehicles and 14,150 Model S and X cars.

    Wedbush analyst Dan Ives characterized the miss as bad but not “apocalyptic.”

    This was a disappointing performance by Tesla, although the key Model 3 number was within the area code of Street expectations…The overall deliveries missed Street expectations, the all-important Model 3 deliveries were above whisper expectations and exceeded 50k this quarter which will be the focus of many bulls on the Street.

    That said, European and Chinese deliveries hit anticipated delivery logistics and were the main culprit for the overall miss which was disappointing to see and resulted in a soft quarter with profitability in the red for Musk & Co.

    Importantly, with Model 3 being the linchpin of growth and future success for Tesla and assuming roughly 7k of the in-transit cars are Model 3’s in Europe, the overall Model 3 delivery number would have been closer to 57k and exceeded Street expectations.

    Overall, the Street was expecting an apocalyptic quarter and Model 3 deliveries were better than feared by many with 50k Model 3 vehicles the “line in the sand” although the overall number was clearly rocky and represents an “air pocket” quarter in our opinion.”

    Other analysts maintained a cautious optimism, according to CNBC:

    “We do not find this slowdown in U.S. demand to be totally surprising or alarming,” Bernstein analyst Toni Sacconaghi told investors in a research note…

    He noted that Tesla’s most expensive Model 3s accounted for “an extraordinary” 33 percent of all sales of sedans priced between $40,000 and $60,000 in the second half of 2018. The average selling price for a Model 3 sedan, Tesla’s most popular vehicle, was $57,000 last year, according to data compiled by FactSet.

    Looking at the longer term stock chart, there could be an argument for the bears as the stock tests the lower limits of an extended trading range.

    TSLA weekly chart

    History also shows now could be an ideal time to sell. The next chart shows the price of TSLA as the blue line and the consensus price target of analysts as the red line.

    TSLA chart

    Source: S&P

    In the past, when price fell below the price target, analysts responded by lowering their targets. That can lead to selling and further pressure the price.

    With an erratic CEO, operational problems and now, a reason for analysts to downgrade the stock, shares of TSLA might be suitable only for the most aggressive investors who are capable of enduring a loss.

     

     

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