U.S. Markets open in 1 hr 17 mins

There's a 'crisis of confidence' in Tesla

Brian Sozzi
Editor-at-Large

One of Yahoo Finance’s very own sums up the situation unfolding in Tesla’s stock (TSLA) perfectly.

There is a “crisis of confidence” in the company, said Yahoo Finance senior columnist Rick Newman on The First Trade. When asked if Tesla’s stock could nosedive to $125 a share from about $200 currently before the electric car company’s next earnings report, Newman remarked: “Why not?”

Newman is on the mark here.

Tesla hits the skids

To say Wall Street is hating on Tesla again is a gross understatement. And to be bluntly honest, the criticism and harsh analysis by these pencil pushers is well-deserved.

Recent weeks have brought news of Tesla CEO Elon Musk personally overseeing fresh expense cuts, a slashing of prices on the expensive Model Xs and Model S‘s and a new $2.7 billion capital raise. Wall Street has smelled blood in the water, and has acted accordingly in an effort to get their research publicized and make clients a boatload of money.

On Wednesday, Citigroup analyst Itay Michaeli was the latest to take a club to the head of the Tesla investment thesis. Michaeli reiterated his Sell rating on Tesla, citing concerns on sluggish consumer and free cash flow generation.

“The recent capital raise was a positive step but won’t necessarily get the balance sheet out of the woods if Tesla cannot achieve free cash flow targets. So the recent reported internal memo, which seemingly called into question prior guidance, didn’t help the risk/reward calculus. The implications can be serious, since an automaker’s balance sheet is always subject to the confidence ‘spiral’ risk,” Michaeli told clients.

Not to be outdone, Bank of America analyst John Murphy reiterated his own Sell rating on Tesla after Michaeli on Wednesday. The tone of Murphy’s note also sucked, if you work at Tesla or own the stock.

“Importantly, there still remain a number of major hurdles ahead for Tesla, including: (1) the ongoing Model 3 production ramp and future operational challenges associated with expanding the product lineup (Model Y, Semi, Roadster, etc.); (2) what could remain very material cash burn in coming quarters (from ongoing delivery/logistic issues, Shanghai factory construction, etc.) that could pressure Tesla’s liquidity even with the recent capital raise; (3) a faster-than-usual spike and burnout pattern for Model S/X and now potentially Model 3; and (4) the prospect of new competition and longer-term obsolescence,” Murphy penned.

With that laundry list of negatives, why even sniff around Tesla’s stock despite it being off 49% from its 52-week high?

Even Tesla bulls sound the alarm

A couple walk next to the new Tesla Model X during the opening of the Brussels Auto Show in Brussels, Friday, Jan. 18, 2019. (AP Photo/Virginia Mayo)

As a refresher, the week began on a sour note for Tesla.

Wedbush analyst Dan Ives — a one-time Tesla bull — slashed his price target on the stock. Ives told Yahoo Finance that while Tesla is likely to avoid bankruptcy, he does see the company needing another $1 billion capital raise to survive. On Tuesday, Morgan Stanley analyst Adam Jonas, also a former super Tesla bull, reduced his worst case scenario price target on Tesla to $10.

Both of these Tesla experts voiced concerns on demand and the health of Tesla’s operations.

Tesla’s stock is down more than 40% this year. The move is probably 100% justified by the company’s weak fundamentals and Musk’s ongoing erratic management style. At this point it’s unclear as to what will stop the Tesla stock blood-letting.

Echoing Newman once more, a “crisis of confidence” in Tesla is in full effect.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.