Is Tesla Inc (TSLA) Feeling the Pressure?
Tesla Inc (Nasdaq: TSLA) stock has struggled to gain traction in the past six months, declining 15.3 percent in the wake of repeated Model 3 production delays. Last week, CNBC reported that current and former employees say Tesla is producing a "surprisingly high" number of flawed vehicle parts as pressure mounts on the company to get on track before investors run out of patience.
CNBC reported that multiple Tesla employees say Tesla has been producing a "high ratio of flawed parts" that must be reworked and repaired, which has likely been contributing to its production delays. In a statement, Tesla says the majority of its production issues are "extremely minor" and fixed within a matter of minutes.
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The new report comes just days after Green Car Reports said in a review that "Tesla Model 3 quality is terrible." Green Car Reports noted issues such as glitches in the car's touch-screen, buzzing sounds, vibration in the steering wheel, and misaligned body panels and glove box doors.
To this point, investors have been extremely forgiving about Tesla's string of missed Model 3 production targets, but even bullish Tesla analysts say there is an expiration date on investors' patience.
According to Bank of America analyst John Murphy, Tesla still has time to get its business on track, but its margin for error is getting thinner by the day.
"Tesla continues to burn material levels of cash while failing to turn a corner on profits and returns," Murphy says. "Despite being a growing top-line business in need of capital to fund its ambitious growth plans, we think investors may grow tired of supplying Tesla with incremental low-cost capital in perpetuity if investments fail to generate returns soon."
KeyBanc analyst Brad Erickson recently spoke to representatives from 25 different Tesla sales centers. Erickson says reports of Model 3 quality problems, including paneling gaps and electrical outages, "seem to be moderating" compared to his last round of checks conducted on early February. Still, he says expectations for Tesla and the Model 3 may simply be too high.
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"Longer-term share gains necessary to support the stock still appear overly ambitious, and ultimately we believe the company's profitable growth will likely not live up to investor expectations," Erickson says.
Bank of America has an "underperform" rating and $180 price target for Tesla. KeyBanc has a "sector perform" rating for TSLA stock.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
