Tesla shares plunge on battery shortage and heavy research spending

Tesla Motors shares plunged in early trading Wednesday after the electric car maker said a battery shortage was limiting sales and that it is spending heavily on research and development to bring new models to market.

Shares of the automaker dropped 16%, or $28.67, to $148.14. Tesla shares have been on a run for most of the year, rising about 400% before this reversal.

Some analysts have cut their price targets for the company and have told investors to sell the shares.

“We do not see a major potential near-term upside catalyst for the shares,” said Efraim Levy, an analyst at S&P; Capital IQ, who has issued a sell recommendation.

He cut his target price by $10 to $140. Levy also slashed his estimate for 2013 full year earnings per share from $0.36 to $0.04, largely on higher research and selling, general and administrative expenses expected in the final quarter of this year.

The company’s outlook was also hurt by a sudden plunge in the sale of what previously had been lucrative environmental credits to other automakers. The sale of such credits reached just $10 million in the third quarter, a fraction of the $51 million in the second quarter and $68 million in the first quarter.

Other automakers have increased their sales of rechargeable cars, lessening their need to purchase the zero emission vehicle credits required by regulators in California and other states from Tesla.

The Palo Alto automaker said Tuesday it posted a loss of $38.5 million, or 32 cents per share, in the third quarter. That compares to a loss of $110.8 million, or $1.05 per share, in the same period a year earlier.  Now that it is delivering cars, revenue grew to $431 million from just $50.1 million a year earlier.

 “On a positive note, revenues and operating cash flows exceeded our forecasts and we see Tesla  expanding production capacity and expanding globally,” Levy said.

Tesla is spending heavily to develop the Model X crossover, its second model. It is expected to go on sale late next year.  It also is working on a third-generation electric vehicle, which would be a mass-market car expected to sell in the hundreds of thousands.

For now, Tesla said it expects to sell about 6,000 of its Model S luxury hatchbacks in the fourth quarter, raising its total to the year to about 21,500 from 21,000.

Tesla could be selling more cars if not for tight supplies of the batteries that run its electric cars said Elon Musk, the automaker’s chief executive.

The inventory problem should ease sometime next year because of a recent agreement reached with Panasonic Corp. that increases shipments, he said.

Although investors were hammering Tesla shares Wednesday, there’s still divided opinion on Wall Street over the company’s potential.

Craig Irwin of Wedbush Securities cut his price target to $205, well above where the stock is trading now, from a lofty $240.

Irwin is valuing the company based on its upside in the electric car market, especially its potential for a so-called Generation III vehicle that Tesla is planning.

The vehicle would be smaller and have a price tag at about $35,000, about half what the current Model S starts at.

 “We see strong positives in Tesla's credible path to longer-term battery cost reduction and the Gen-III vehicle target costs, and what we believe will be a receptive buying public willing to purchase EVs,” Irwin said.

He said that Tesla has a “multi-year lead over credible competition” that leaves it “well positioned” in the electric vehicle market.

Other analysts agree it is proper to value Tesla as a long-term growth company rather than another manufacturer in the mature auto business.

Looking at its production ramp up over the last year, “it becomes clear that Tesla has achieved tremendous milestones from a design, marketing, technology and manufacturing standpoint,” said Elaine Kwei, an analyst with Jefferies, the investment house.

She noted Tesla’s revenue, primarily from sales of the Model S, has now passed $2 billion over the last four quarters.

“With a technology advantage, desirable and differentiated products, and proven execution, we think we're only scratching the surface of things to come,” Kwei said.

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