Tesla’s stock surged in pre-market trading following the news that it achieved its production target of 5,000 Model 3 vehicles per week. Now the stock is taking a tumble as Wall Street throws cold water on the Model 3 production ramp.
It looks like Elon Musk’s prediction that people betting against Tesla seeing ‘their position explode’ has yet to happen.
The stock took a turn after CFRA analyst Efraim Levy told clients to sell the stock following the delivery and production results.
He said that the new Model 3 production rate is not “operationally or financially sustainable” despite Tesla reiterating that they expect to be cash flow positive during the second half of the year after achieving the new production rate.
Levy also expressed concern about Tesla’s order deposit for the Model 3 (via MarketWatch):
Separately, he said reports that Tesla is asking for another $2,500 non-refundable deposit from Model 3 reservation holders “as a little unnerving, as it seems to be an aggressive attempt to meet otherwise difficult targets of being cash flow positive in Q3.,” he wrote.
The CFRA analyst is changing his ‘hold’ rating to a ‘sell’ rating in the note to clients.
Efraim Levy is ranked #1,041 out of 4,825 Analysts on TipRanks with a success rate of 68% and an average return of 10.3%. Levy has a long history of recommending to sell Tesla’s stock:
I’ll be the first to admit people shouldn’t listen to me for recommendations on buying and selling stocks. That said, I don’t get why people are still listening to these Wall Street analysts either.
A lot of people are for sure listening though since Tesla’s stock dropped by about 8% following Levy’s note.
Should they? I think it’s fair to question the potential for Tesla to maintain its recently achieved production rate of 5,000 Model 3’s per week.
Historically, production has fallen after those end-of-the-quarter pushes, but that doesn’t necessarily mean that it will be the case again.
As for the financial aspect, I think the gross margin for the Model 3 will only improve in the coming weeks and months as Tesla starts producing the performance and dual motor versions of the car.
Finally, I can’t believe that he brought up the order deposit.
Bloomberg and CNBC both wrote about that last week as if it was a new money grab strategy from Tesla, but the company always required non-refundable deposits for custom orders.
The reservation process, which has a separate refundable deposit, has always been a separate process from actually placing your order and Tesla starting the process of custom building a vehicle, with Model S, Model X, and now Model 3.
The media made it into something else and now Wall Street seems to be buying into it.
This Wall Street analyst world is a weird one to me and it seems to have put a stop to Tesla’s run.
Will it kill Elon’s prediction or is this only a small temporary hurdle? What do you think? Let us know in the comment section below.