TSLA) CEO Elon Musk should keep the phone line open with his banker buddies.
former Tesla super bull slashed his price target on the stock again on Monday to $230 from $275, which sent shares of the money-losing auto outfit down as much as 5%.
The analyst only a month ago cut his rating on Tesla’s stock to Neutral from Outperform.
Ives’ cash projection is somewhat startling considering Tesla is fresh off a badly needed capital raise. Earlier this month, Tesla raised about $860 million by selling new stock and $1.84 billion through the issuance of convertible debt. Both efforts came despite Musk contending throughout most of 2018 that Tesla didn’t need to raise capital.
But with a stock price continuing to languish and terrible first quarter earnings in the books, Musk clearly had to take some form of action to shore up Tesla’s finances. Keep in mind Tesla’s cash pile plunged $1.5 billion in the first quarter of 2019 from the fourth quarter 2018.
Indeed, a weak cash position is the last thing Tesla needs ahead of a Model 3 production ramp, forays into robo-taxis and car insurance, and whatever else Musk dreams up. Slowing demand for Tesla’s pricey electric cars doesn’t help the company’s fundamentals.
Ives doesn’t expect Tesla to file bankruptcy (somewhat reassuring for the diehard Tesla bulls…) and foresees it returning to profitability.
“If demand comes back and they cut costs in other non-strategic initiatives I think they can be profitable,” Ives believes. Recently, Musk has implemented a new round of cost cuts at Tesla to save money — which he is personally undertaking.
But, Tesla getting to that point of profits that Ives envisions will likely take longer than the market expects and require more cash.
“It will take some pretty significant navigating throughout this perfect storm they are hitting,” Ives says, voicing concern over slowing product demand and Tesla’s “bloated” cost structure.
A Tesla spokesman declined to comment on Ives latest note.
If there are any positives for Tesla right now, it falls onto the lap of hardcore stock traders.
With Tesla’s stock having crashed 40% so far this year — and falling below the psychologically important $200 level today — the stock may be nearing oversold levels.
“The stock is getting oversold on both a short-term and intermediate-term basis,” veteran strategist Matt Maley of Miller Tabak says. But proceed with caution, for now.
“We could indeed see Tesla fall all the way down to $180 before it can stabilize… and bounce… in a meaningful way,” Maley adds.
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