By on July 7, 2017

Tesla Model 3 Duo - Image: Tesla

If Tesla stock was an airplane, it would have left Earth’s atmosphere sometime this spring. By June, that aircraft — let’s call it the Model P — would have been within striking distance of Mars. Indeed, Tesla investors made out like bandits as the company’s shares soared and its market cap sailed past that of Ford and General Motors, making it the most valuable domestic automaker.

For a while, it seemed nothing could stop Tesla’s meteoric rise. Not labor strife, not worries about the Model 3’s production timeline, not a cracked A-pillar on a freshly delivered Model S, not Model X doors trapping people inside a burning vehicle, not allegations of subpar working conditions, nothing. Tesla may as well have tried buying the rights to the word Teflon.

Well, CEO Elon Musk said it best himself in May. The company’s market valuation was “higher than we have any right to deserve,” he told The Guardian, a month before Tesla shares rose to a record $383.45. As the saying goes, “What goes up…”

This weekend brought bad news for the company and its investors, masked with a tasty bit of fare for brand loyalists and Musk’s cadre of rabid superfans. Model 3 production, Musk tweeted, would commence late last week, two weeks ahead of schedule. Joy. Merriment. Bliss.

However, the long holiday weekend also brought dark clouds to Tesla’s sunny skies. Second-quarter production fell compared to Q1, with just over 22,000 Model S and X vehicles rolling out of Fremont — considerably less than the nearly 26,000 produced in 2017’s first quarter. The company blames a temporary, but severe, shortfall in 100 kWh battery packs.

Also this week, Tesla’s Model S failed to achieve a coveted Top Safety Pick+ rating from the Insurance Institute for Highway Safety, pushing it out of the top echelon of safe large sedans. Meanwhile, Volvo doubled down on its electrification promises, declaring that all new vehicles would contain some measure of electric propulsion from 2019 onwards.

The news had an immediate impact on Tesla’s stock. From its late-June high, share prices fell as low as $306.70 yesterday, 2o percent below the recent peak and flirting with bear market territory. At last count, Tesla shares have rebounded just over 4 percent in Friday trading. However, its market cap of $48.53 billion now sits firmly below that of GM’s ($52.52 billion), which it surpassed back in April.

Analysts began predicting a correction months ago, so it isn’t all that surprising to see Tesla’s stock hit a speedbump. As the Model 3 hits production, investors should expect a bumpy ride. Goldman Sachs analyst David Tamberrino tells MarketWatch that plateauing demand for Model S and X vehicles, as well as the cost of building an ever-increasing amount of lower-priced Model 3s, should impact the profit margins of a company not used to being in the black.

[Image: Tesla]

Get the latest TTAC e-Newsletter!

Recommended

47 Comments on “Fall Guy: Tesla Stock Dives as Storm Clouds Rain on Musk’s Parade...”


  • avatar
    redmondjp

    Raise your hand if you believe that a shortage of batteries is why they won’t meet this year’s production goals . . .

  • avatar
    dukeisduke

    I think they make some cool products, but I don’t see them surviving once the big carmakers’ electrification really gets going. I believe he’ll be bankrupt or acquired by the end of 2019, and maybe sooner.

    • 0 avatar
      APaGttH

      I think this depends. We’ve reached a point where Tesla is a semi-legit luxury car maker. I say semi-legit because a string profitable quarters has yet to reveal itself (but, but R&D! Like other automakers don’t invest in R&D on their next platforms).

      The real question is on the Model 3. The first one is available today. Huzzah!

      There is still no formal information on range, actual vehicle specs, photos of production model inside and out in detail, build sheet, options and prices, color choices, etc. etc.

      Anyone who has followed the car industry would be going, “that’s pretty weird.”

      I know someone is going to reply $35K is the price! All Tesla has ever said is around, close, likely. They’ve never said, “the starting price of a Tesla Model 3 is $34,995 before delivery and government incentives.” Historically, they’ve released models that are available at the marketed price point, and have them for sale for 3 to 4 weeks, then cancel them. Also, traditionally, the price point and the range promise hasn’t aligned (oh, you want 215 miles, well that’s more).

      If I was an investor, I’d be worried about these issues.

      IF the Model 3 is $35,000ish before incentives…

      IF they can hit the range targets (remember, they started at 250, now it is 215) on even the most base model…

      IF the average buyer is going to be happy with the options and features at a base level…

      IF they can hit production targets and…

      IF they can turn a profit, they’ll be a legit car company. I put it at 60/40 in favor of – Musk may be a huckster but he has shown over and over again, don’t bet against him.

    • 0 avatar
      hreardon

      I’m with dukeisduke on this. The biggest threat to Tesla is going to come from Audi, BMW, Porsche and Mercedes, who are all between 6 – 18 months from volume sales on products that will compete directly with Tesla. The thing Tesla should fear more than anything is the German three siphoning off the high margin sales at the top end.

      Volkswagen Group and General Motors are the biggest overall threats to Tesla’s long term survivability due to their distribution network, manufacturing scale/expertise and brand recognition.

    • 0 avatar
      WheelMcCoy

      Competition from big car makers can be seen as a good thing. The EV market is still bashed in some corners as glorified golf carts for greenies. Entry by big car makers legitimizes the market and that in turn makes the EV market grow.

      I have no doubt the traditional car makers can make an EV, but they will be constrained by the baggage their current success and experience. They will need to retool their factories, they will try to reuse the parts bin, few will offer a trunk and a frunk, and their NAV will likely still feature the nearest gas stations.

      Their offerings *may* be good enough to kill Tesla, but it could also go the way of Microsoft Zune vs. Apple iPod.

      • 0 avatar
        anomaly149

        Tesla is incredibly lucky that it’s a lone status symbol, and that none of the major luxury competitors have seen worthwhile profitability in moving into the BEV space fully yet.

        Once the tri-star or four rings find their way onto an electric platform, Tesla will be up against the people who know how to do quality processes and actual PPAP. Suddenly, they’ll notice the other guys have a million+ more units on the IC side to amortize fiddley bits against, have massive experience and skill with quality and cost engineering, and have a lot more pull with the supply base.

        This is gonna hurt.

      • 0 avatar
        hreardon

        WheelMcCoy –

        While I like the Zune/iPod comparison, I’ve argued elsewhere that it’s not a really good example when it comes to the auto industry. With the iPod, up until Apple nobody had really put all of the pieces together into a coherent solution. Microsoft’s Zune came late and when it did come, it didn’t really bring any significant differentiator. Additionally, Apple built an ecosystem around the iPod/iTunes and leveraged that to the hilt to tie people in and make it very inconvenient to switch.

        The auto industry doesn’t have that same lock-in. Plus, the decision making process is very different when it comes to a $299 product versus a $39,000 one.

        My take is this: “electrification” is really nothing other than a new powertrain, like diesel, hybrid, e-gas, etc. As we’ve discussed in these forums before, and sales numbers prove, the powertrain is only *part* of the reason someone buys a particular car. As Audi and BMW have demonstrated, not many people care that their A4/A6/Q5/Q7/3-Series/X3/5-series has a 4 cylinder turbo or a NA 6 cyl. or 8.

        So, when Audi brings the Q8 CUV to market in the next 12 months and it offers 250 miles per charge, I suspect that the Audi brand, dealership network, marketing reach and familiarity with the existing Q3/Q5/Q7 will sway a lot more people than will the Model X.

        And here’s the key: assuming the Q8 looks and feels like a variant of the existing Q5/Q7 with electrification being the only differentiator….

        So, while Tesla has built its brand on being the go-to for electrification, I think that the automakers who have extensive experience building luxury vehicles, luxury brands and supporting luxury buyers will siphon off enough buyers from Tesla to severely cripple the company.

        Of course Tesla may be able to carve out a position in the market for itself and become *the* electrification player, but if you think that the big players have been stagnant dinosaurs for the last 15 years, you haven’t been paying close enough attention – especially at Volkswagen Group.

        • 0 avatar
          hreardon

          Additionally, I’ll add that barring a major armed conflict or sudden disappearance of fossil fuels, the intermediate future is going to be hybrid powertrains – not full electrics. This is going to especially be the case for large SUVs.

          We’ll move slowly toward electrics, like we’ve moved slowly toward hybrids. But the pace and market acceptance is going to be much slower than the eco-warriors and politicians think (or the automakers publicly announce).

  • avatar
    orenwolf

    I’m excited to see the first model 3s roll out so we can get some real-world driving tests in and I can start thinking about whether or not to keep my preorder place in line or not.

    I have to say, if Tesla, who have had a serious multiyear plan for batteries in volume are having shortage issues now, what are these other carmakers late to the game going to do for supply?

    • 0 avatar
      No Nickname Required

      It seems to me that the other manufacturers could simply each create their own shortage…

    • 0 avatar
      Ihatejalops

      @Oren

      You’re not worried about any QC issues? To me that’s a big part plus the TV in the middle of the car.

      • 0 avatar
        hreardon

        QC is going to be their biggest challenge and will ultimately determine Tesla’s fate. The first round of Model 3 buyers will be early adopters willing to put up with headaches. The real question is how Tesla will handle scaling up to 20,000 units/mo. by December, as promised – and doing so without any flaws.

        Early adopters are always willing to cut the OEM lots of slack. Mainstream buyers, as every consumer survey demonstrates, are completely brutal, ignorant and picky. Those mainstream buyers could very will kill Tesla if the echo chamber of negativism gets loud enough.

      • 0 avatar
        JimZ

        they’ll be bleating the “they’re just a startup!” excuse until the year 2075.

      • 0 avatar
        orenwolf

        I’m not *personally*, because by the time they get around to Canada, there’s going to be very many of them on the road (and any QC issues will be identified by then). I need to get in and see what I think of the dash setup. I rather enjoy the HUD currently on my Mazda 6, and otherwise don’t really look at the dash itself, so it’s a good question on whether or not the information being centralized will bother me or not. My gut says I’ll dislike the speedo in the middle, we’ll see.

    • 0 avatar
      Big Al from Oz

      China. Until the batteries get an import tariff.

      • 0 avatar
        orenwolf

        China’s going to need them for themselves, though – they’re going through a crazy pollution situation the govt is trying to alleviate with an electric car mandate now, after all.

  • avatar
    thegamper

    I think if Tesla can produce the Model 3 as promised, with cost of between 40-50k it will raise its fortunes considerably. A truly mass produced car selling at more than niche vehicle volume could solidify Tesla in the automotive landscape. This is a new clientele though, the quality and reliability needs to be there. Tesla may be one of the most desirable brands right now, it can stay that way even if the big automakers begin to offer wide range of electric vehicles. Sort of like the iphone, sure Android sells a cheaper, sometimes better made, sometimes more feature laden, better performing phones……but I want to pay more for an iphone because….you know…it costs more so must be better or I can feel better about myself for having a luxury item ….whatever. Branding sells….period. Even if the quality, capability isn’t quite there.

    • 0 avatar
      hreardon

      thegamper –

      And this is why Tesla is in such a race: it’s not a question of “IF the big automakers begin to offer wide range of electric vehicles”, it’s only a matter of months before the (more) profitable high end gets electrified Audis and BMWs (as two examples).

      The mass market will be far more likely to give an electrified Audi or BMW a chance, and Tesla knows this.

      The problem facing Tesla is that the next threat (Audi, BMW, Merc) will likely match Tesla in terms of performance, while also providing the same level of luxury accomodation and comfort that buyers expect.

      Assume a Toyota equivalent to the Tesla Model 3 or an Audi equivalent of the Tesla Model S – I know I’d buy from Toyota or Audi without a question.

      • 0 avatar
        mcs

        Right now, I’m leaning towards a Porsche EV. However, I do think Tesla has some advantages.

        With a 300+ mile range, most of the time I won’t need to worry about public charging. If charging was an issue for me, Tesla still has a huge lead in infrastructure the competition needs to match. We’ll have to see what Volkswagen comes up with.

        The other advantage Tesla’s has is that its quality might actually be better than the Germans. Just this month they made improvements to the Model S and X drivetrain. The Germans seem to have more than their share of quality issues and they have established car companies. To make matters worse, most of my German car issues in the past were electrical.

        The advantage the Porsche has is that is beautiful and I’m willing to risk the German car issues. It won’t be my only car, so I can take a risk.

        • 0 avatar
          JimZ

          “The other advantage Tesla’s has is that its quality might actually be better than the Germans.”

          the Germans don’t deliver cars with peeling paint and torn sheetmetal.

          • 0 avatar
            Erikstrawn

            I’d rather have peeling paint than electrical issues on an electric car.

            Whether or not Tesla survives, they pushed the other car makers into EV production. Just a couple years ago there were plenty of commenters here who swore we would not see mass production of EVs in our lifetime.

  • avatar
    Land Ark

    I first invested in Tesla when I wanted something to offset the guilt I had for buying BP stock when it hit bottom. I paid $36.84 for 10 shares. Little did I know that was the highest value it would achieve during my ownership. It promptly dropped and hung around in the low $20 range for months and months. I finally decided to ditch it and use that money better elsewhere.

    I’ve since reinvested but I paid a significantly higher premium for the privilege and I certainly didn’t get the returns I would have if I had just ridden it out with them the whole time.

    But, the latest drop that everyone is so excited to report about brings the value of the stock all the way back to the ancient times of late May. Is it significant, yes. But I’ve experienced worse and I don’t expect this to be the last time it slumps.

    I’m eagerly awaiting the full release of the 3. That will be a good barometer for the next couple years.
    But don’t forget, Tesla makes more than cars.

    • 0 avatar
      EBFlex

      “But don’t forget, Tesla makes more than cars.”

      Yes, I’m sure they have a full line of overpriced fashion accessories to go with their four-wheeled fashion accessories.

    • 0 avatar
      JimZ

      and here’s the mindset of a Tesla fan, laid bare. “It’s a privilege for me to be able to buy shares in TSLA.”

      • 0 avatar
        Land Ark

        Well when you phrase it that way… I used “privilege” in the somewhat ironic sense.

        I am hardly a Tesla fanboy. I only bought the stock because I thought it had potential (the stock, not necessarily the company). I don’t invest with emotions.

        Would I buy a Model 3? Probably. But I don’t have a reservation and I would never want to be one of the first ones in line for one. It’s certain to be nothing but problems for the first several thousand units. But me and my stock would love to be proven wrong.

  • avatar
    EBFlex

    Funny. Whenever anything goes remotely bad in Teslas La La land, they always have an excuse and blame some outside factor as to why they, well, suck.

  • avatar
    Fred

    There are enough questions about Tesla that it’s future as a growth stock is limited. With high valuations you should be selling. Take financial advice from me at your own risk.

    • 0 avatar
      APaGttH

      Not a Jim Kramer disciple but I think this is pretty good advice from him.

      Invest in a stock and it goes up 50%? Sell 25%

      Invest in a stock and it goes up 100%? Thank you and goodbye.

      For the small investor who doesn’t spend every day looking at their portfolio, pretty good advice. I wouldn’t call this a hard “rule” but good advice, there are naturally exceptions based on the why and the rate of the growth.

    • 0 avatar
      Big Al from Oz

      Fred,
      I think Tesla’s biggest problem will be range on this new “cheap” Tesla.

      I bet to get one with realistic range will cost a sh!tload more.

      People will see this and cringe and go out and buy a ICE car from a real auto manufacturer.

  • avatar
    sirwired

    Tesla’s reaction to the IIHS results didn’t help matters. Instead of just promising to analyze the results so future models could do better, they threw a hissy-fit about how the IIHS was clearly some sort of nefarious anti-Tesla cabal with a hidden agenda so subtle, Tesla forgot to tell us exactly what the IIHS was supposed to get out of it.

  • avatar
    stingray65

    So a battery shortage supposedly caused S and X production to slow, but they still plan to greatly expand production with the Model 3 which also requires batteries? The S is now a senior citizen that needs a major and costly refresh to maintain sales momentum, but has never made a profit. X sales are already slowing down – it appears the gullwing doors aren’t enough to maintain buyer interest. I suspect the Model 3 will cannibalize a lot of X and S sales, but it is hard to imagine how the cheaper model will be less unprofitable than the S and X. If the Model 3 actually proves popular, Tesla will need to greatly expand its manufacturing capacity, which will be very costly. Much higher volume will also likely require much more selling and servicing capabilities, which will also be very costly. So when is Tesla actually supposed to start earning a profit that supports a $300+ per share stock price valuation?

    • 0 avatar
      JimZ

      “it appears the gullwing doors aren’t enough to maintain buyer interest.”

      correction- *Falcon* doors. Gull-wing doors would at least work properly most of the time ;)

  • avatar
    slavuta

    Stock market is like casino. only in casino you know result of your game in the same day.

  • avatar
    brandloyalty

    Meanwhile in neutral news land…
    http://www.cbc.ca/beta/news/business/tesla-model3-volvo-bmw-electric-car-alternative-fuel-gasoline-1.4192878

    http://www.cbc.ca/beta/news/canada/british-columbia/bc-heat-wave-temperature-records-1.4194740

    http://www.cbc.ca/beta/news/technology/more-summer-sun-helping-greenland-ice-melt-1.4191700

  • avatar
    Big Al from Oz

    Tesla will be remembered for it’s brief life as an innovative auto company that just didn’t cut it.

    Elon Melon has yet to get the GigaFactory up to speed. Tesla does have recalls. If Tesla sells quite a few of these and has a recall, that will be the end of Tesla.

    Tesla has and still is reliant of the die hard groupie green set and now Elon thinks he can break into the consumer end of the market and take on the big boys.

    I’m quite skeptical of Tesla to say the least.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • DenverMike: No, he’s all about saving American jobs. Until he needs he needs work done at his US house and...
  • randyinrocklin: I had a former employee that had one brand new in 86. Red/black. I have a ’04 Spyder and a 91....
  • randyinrocklin: Thank you for your informative post.
  • randyinrocklin: The best way to ever test drive a car you’re going to purchase is to rent one for a week.
  • Lie2me: I stopped watching, or caring about, Buick a long time ago

New Car Research

Get a Free Dealer Quote

Who We Are

  • Matthew Guy
  • Timothy Cain
  • Adam Tonge
  • Bozi Tatarevic
  • Chris Tonn
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber