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Tesla (TSLA) Stock Isn’t a Bargain, Despite Recent Sell-Off, Says Needham

support@smarteranalyst.com (Ben Mahaney)

Many investors are buying Tesla (TSLA) stock for the future. Last week, the future hit another speed bump.

Federal investigators from the National Transportation Safety Board determined that the Model 3, which crashed in March in Florida, was operating with Autopilot active. Many believe the now-semi-autonomous Autopilot to be the future of Tesla, with Elon Musk recently pledging a fully autonomous car to hit the road in 2020. But with the company scrambling on many different fronts, is its latest misstep the most significant?

Needham analyst Rajvindra Gill believes that “any signs of safety issues surrounding the Autopilot feature could cause the value of Tesla's brand and its share price to deteriorate,” as he reiterates his Underperform rating on Tesla stock. (To watch Gill's track record, click here)

The Model 3 crashed into a truck in Delray Beach, Florida, on March 1st, killing the driver in a similar fashion to a Model S crash in 2016. As the NTSB said Autopilot was active, Gill says this “could cast doubt on Tesla’s self-driving capabilities,” with the stock declining about 10% since the report came out.

Aside from being an electric car, Gill says Tesla’s “Autopilot feature has been an integral component of the company's perceived competitive differentiation and hence its high valuation,” as investors are buying into a self-driving future, with many believing Tesla is a leader. But Gill sees other manufacturers catching up, including Toyota, Volvo and Daimler Chrysler, which puts Tesla at a disadvantage whenever Autopilot challenges arise. 

The recent revelation that Autopilot was active during a fatal crash just adds to Tesla’s painful 2019. The company recently released earnings that continues to show a struggling company, as production and deliveries decreased mightily last quarter. Furthermore, the company recently announced it had raised more than $2.3 billion through debt and equity, including a $1.6 convertible bond and the sale of $750 million of company stock. The cash raise will help the provide the company a longer runway, which Tesla hopes will give them time to continue generating more demand for its vehicles, while lowering the price for the Model 3, which it hopes to be its first affordable, mass-produced vehicle.

All in all, the troubled electric car giant certainly has the Street divided, as TipRanks analytics indicate TSLA as a Hold. Based on 27 analysts polled in the last 3 months, 8 rate a Buy on Tesla stock, 7 maintain a Hold, while 12 issue a Sell on the stock. The 12-month average price target stands at $271.86, marking a 33% upside from where the stock is currently trading. 

 

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