Tesla Inc. shares dropped below $200 for the first time in more than two years on concerns that Elon Musk’s electric-car company faces a “Kilimanjaro-like uphill climb” to hit profitability goals in the second half of the year.
In a note Sunday, Wedbush analyst Dan Ives described Tesla’s predicament as a “code red situation” and cut his price target on the stock to $230 a share, from $275. Ives slashed his target from $365 just last month.
Once among the most bullish analysts covering Tesla, Ives said he has “major concerns around the trajectory of Tesla’s growth prospects and underlying demand on Model 3 in the U.S. over the coming quarters.”
The Model 3 is the vehicle Tesla pitched as an electric car for the masses.
Tesla shares sank as much as 7.5% to $195.25 on Monday morning before recovering somewhat; around 9:20 a.m. PDT, they were down 3.6% at $203.43. On Friday, the stock closed at the lowest level in almost 2 1/2 years after Chief Executive Musk called for a “hardcore” review of all the company’s expenses and an analyst warned of potentially severe fallout from a fatal crash involving Tesla’s semiautonomous Autopilot feature.
Tesla delivered just 63,000 cars in this year’s first quarter but has said it expects to deliver 90,000 to 100,000 cars in the second quarter and 360,000 to 400,000 for the year. Ives said hitting the full-year target is going to be a “Herculean task” and sees 340,000 to 355,000 as a more likely scenario.
Representatives for Tesla didn’t immediately respond to requests for comment.
Tesla’s 5.3% bonds due 2025 now yield about 8.9%, according to Trace, well above the average yield for a B-rated company. The bonds have trailed the broader Bloomberg Barclays Single B U.S. High Yield Index this year by about 500 basis points, according to Bloomberg Intelligence analyst Joel Levington.
“There’s little in the form of favorable credit catalysts to turn momentum around in the near term,” Levington said in a report Monday. The bond price dropped below 83 cents on the dollar for the first time on an intraday basis, making the security the biggest loser in the high-yield market Monday, according to Trace.
Musk recently told employees in an email that he and chief financial officer Zachary Kirkhorn will personally scrutinize expenditures following a bigger-than-expected first-quarter loss. The company had to pay off a $920-million convertible bond with cash in March, and an additional $566 million is due in November.
When drumming up interest for a stock and debt offering this month, Musk pitched investors on a future of autonomous robotaxis as the key to Tesla becoming a $500-billion company. Its market capitalization is now about $36 billion, trailing General Motors Co. and Ford Motor Co.
If Tesla is unable to turn a profit in the second half of the year, the company may need to raise an additional $1 billion to $2 billion of capital, Ives said in an interview with Bloomberg Television.
“With a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser-focused on shoring up core demand for Model 3 and simplifying its business model and expense structure,” Ives wrote in his report.