Shares of Tesla (TSLA) are under pressure after the electric carmaker reported a loss of ($2.90) a share for the first quarter, which was considerably worse than what Wall Street had expected, and weaker than anticipated revenue. Following the quarterly results, Wedbush analyst Daniel Ives downgraded the stock to Neutral citing a loss of confidence in the story, calling the quarter "one of the top debacles" he has ever seen, adding that the company acts "as if demand and profitability will magically return."
RESULTS: On Wednesday after market close, Tesla reported first quarter losses per share of ($2.90) and revenue of $4,54, both below consensus forecasts of ($1.30) and $5.33B. The company said it ended the quarter with $2.2B of cash and cash equivalents, a $1.5B reduction from the end of 2018. This reduction was driven by a $920M convertible bond repayment and an increase in the number of vehicles in transit to customers at the end of the first quarter. The electric carmaker produced 63,000 Model 3 vehicles in the quarter and said deliveries of Model S and Model X declined to 12,100 vehicles compared to its two-year run rate of roughly 25,000 units per quarter. Nonetheless, Tesla reaffirmed its guidance of 360,000-400,000 vehicle deliveries in 2019, noting that it sees 2019 capital expenditures of $2.0B-$2.5B. Additionally, the company said that it expects to significantly reduce loss in the second quarter and return to profitability in the third quarter.
LOSS OF CONFIDENCE IN TESLA STORY: Calling himself a "long-term bull on the Tesla story," Wedbush's Ives said he was "throwing in the white towel" and downgrading the stock to Neutral from Outperform as the demand story is quickly changing and the company has "unfortunately not adjusted to an evolving EV landscape." The analyst told investors that he views this quarter as "one of the top debacles" he has ever seen, while "Musk & Co. - in an episode out of the Twilight Zone - act as if demand and profitability will magically return to the Tesla story." Ultimately, Ives believes the company's guidance is aggressive and management and the board are not taking aggressive enough cost cutting actions and shutting down future endeavors to preserve capital and give a sustained path to profitability for the Street. Further, the analyst continues to feel robotaxis, insurance products, and other endeavors are "distractions from the growing demand woes" that are not being addressed. At this point "the writing is on the wall" that Tesla will likely have to raise $3B-plus of capital in the near-term to sustain its capex and debt needs given its current profitability path, he contended. The analyst lowered his price target on the shares to $275 from $365 to reflect his reduced numbers for the coming years and his loss of confidence in the story.
Reiterating an Underperform rating and a $160 price target on Tesla's shares, Cowen analyst Jeffrey Osborne told investors in a research note of his own that the company appears to be entering into an "era of uncertainty" as a period of normalized demand approaches after enjoying the last 18-24 months of pent up demand for the Model 3 from the deposit list. The analyst added that he sees lower prices as largely indicative of a "demand fishing expedition." Even as Tesla reiterated guidance, Osborne believes the company has some of the lowest forward-looking visibility in recent memory.
'ROUGHLY' AS EXPECTED: Still bullish on Tesla, Canaccord analyst Jed Dorsheimer raised his price target on the shares to $394 from $391, while reiterating a Buy rating on the name. The analyst noted that the company posted first quarter results that were "roughly” as expected, and argued that its "solid" second quarter delivery guidance of 90,000-100,000 vehicles should help quell demand concerns. Further, Dorsheimer highlighted that the company stated it was planning on offering an insurance product for consumers. He views anything that lowers the consumer's cost of ownership as a clear benefit for demand.
Also reiterating an Overweight rating on Tesla's shares, Piper Jaffray analyst Alexander Potter noted that although logistical challenges, along with lower transaction prices, had an "obvious impact" on the first quarter's profitability, this should be temporary. The company's guidance implies a second half recovery for both deliveries and margins, and "this seems reasonable," the analyst added. Potter believes Tesla's first quarter suffered from a "particularly nasty combination of headwinds," including seasonality, a big buildup of non-U.S. deliveries, and the expiration of tax incentives in the U.S, that should not repeat.
Meanwhile, Jefferies analyst Philippe Houchois said that beyond the headline miss and "ongoing stress," he saw "enough positive surprises” from auto gross margin resilience, cash earnings and gross liquidity to argue the shares have sufficiently re-priced. The analyst still sees value in the company's electric vehicle/connectivity technology and experimentation and remains confident "there is a path to sustained profitability." Houchois kept a Buy rating and a $400 price target on Tesla’s shares.
PRICE TARGET: In morning trading, shares of Tesla have dropped over 2% to $252.82.
