Tesla Woes-When Will it Stop?

Summary
• Tesla investors nervous as Tesla stock slump.
• Although the stock bounced on Friday, some strategists think the precarious situation is far from over.
• Interestingly, low demand is not to blame and analysts think that the automaker has to improve greatly to leave a mark this year.

According to a section of strategists, we have not seen the last of Tesla woes; the slump is more likely to continue as the stock faces an acid test with growing negative investors sentiment mainly anchored in the automaker’s business strategy.

By Friday, Tesla had dropped over 13 percent which ended its worst weekly performance in approximately a year and a half. In just a week, Tesla faced a plethora of bad news ranging from a string of bearish forecasts, below par results in safety tests and delivery numbers which were way off the mark.

The stock got a reprieve on Friday where it pulled back some of its weekly losses to gain 1 percent and as a result trading above $313.This was after the company reported in transit vehicle figures which augured well with investors’ expectations.

Technically speaking, according to Ari Wald who is Oppenheimer’s head of technical analysis, Tesla stock is currently trading $10 to $20 above critical levels. This is contrary to investor’s expectations after the stock briefly hiked to an all time high $387 in June.

Relative to those highs, Tesla can be termed to have entered a technical bear market after dropping 20 percent.
Managing director for foreign exchange strategy at BK Asset Management, Boris Schlossberg asserted that Tesla does not have demand problems and it is still able to supply cars.

“The key question is, are they going to be able to ramp up supply? That is a big Achilles heel, because they have always come up short. So they’re really going to have to step up next year,” said Schlossberg.

He also noted that the stock can bounce back if it increased its delivery to around 200,000.According to him, if the automaker continued to “disappoint with supply”, it won’t be a surprise for slump to continue.

Is a 42 percent drop imminent?

Tesla, on Monday, reported dismal global deliveries for the first half coupled with its own forecast for Model X SUV and Model S. Also, in April, registrations were reported to have fell 24 percent year-over-year. As a result, Goldman Sachs lowered its six month forecasts by $10 from $190 to $180. This in turn implies a 42 percent drop compared to Friday’s closing price.

In a note to clients, Analysts David Tamberrino said “”We remain sell rated on shares of TSLA where we see potential for downside as the Model 3 launch curve undershoots the company’s production targets.”He added that margins for second half are more likely to follow the same trend.

“This comes as demand for TSLA’s established products (Model S and Model X) appear to be plateauing slightly below a 100k annual run rate,” he added.