Elon Musk’s companies can survive exploding rockets, “super rude” customers, and various other setbacks, but Tesla is currently living its worst nightmare.
Tesla shares are down 25% on the year and at their lowest level since February 2014.
It looks as though super cheap gas is dealing the company a big blow.
Musk recently said his electric vehicle company was immune to super low gas prices because his customers were interested in high-end super cars.
Wall Street appears to be in disagreement withe company’s founder.
Adam Hull, an analyst with European investment bank Berenberg, initiated coverage on Tesla Wednesday with a sell rating.
Following his note to investors Pacific Crest analyst Brad Erickson said in a report Tuesday that investors should “avoid” Tesla stock. Erickson said the company was likely experiencing sluggish demand for its new Model X crossover.
Even Adam Jonas of Morgan Stanley, a longtime Tesla bull, is starting to turn bearish. Jonas cut his price target from $450 a share to $333 on Monday. That’s still an 80% premium on Tesla shares.
Tesla is hoping to release a “cheaper” Model 3 in 2017, however, it will still cost $35,000. That’s a pretty big premium during a time when gas prices are averaging $1.76 a gallon. Many investors believe the company won’t deliver the vehicle until 2018.
Before the Model 3 can debut, Tesla must first get its gigafactory up and running in order to produce the massive number of lithium ion batteries it will need for production.
Elon Musk has promised to release more details about the Model 3 in March.
Jonas is no longer convinced that Tesla can deliver on his promise to deliver 500,000 vehicles per year by 2020. His reason is simple: Low gas prices.
Jonas believes Tesla may only deliver 246,000 cars by 2020.
“Low demand for electric vehicles categorically and globally in a $30 oil environment leads us to reduce volume assumptions for the Model 3,” Jonas wrote.
Tesla shares are still trading at a ridiculous 100 times 2016 earnings estimates, and if investors are starting to believe the company won’t deliver, that could translate to a very bad 2016 for the company.
In the meantime, the Chevy Bolt will debut later this year and will cost about $30,000. As the big three automakers and their foreign counterparts continue to undercut Tesla’s price point, it could cause further growing pains for the company.
Further complicating the relationship Tesla has with customers is a new GM partnership with ride-sharing startup Lyft. Those companies are working together to build autonomous cars. Ford is also reportedly working with Alphabet (Google) on driverless vehicles. While not confirmed by the company, it’s the “worst kept secret” in Silicon Valley that Apple is also attempting to develop an autonomous vehicle.
Tesla is already missing targets. The company delivered 50,850 vehicles to customers in 2015. That was below the forecast of 55,000 that Musk promised at the beginning of last year.
If Elon Musk delivers on his promise to increase production by 50% year-over-year for the next few years, Tesla could rebound and prosper. However, that means Tesla will need to deliver just over 75,000 vehicles in 2016.