The 'Elon Musk trade' really isn't working right now

Elon Musk SpaceXAlex Wong/Getty ImagesCEO and chief designer of SpaceX Elon Musk participates in a discussion during the 2014 annual conference of the Export-Import Bank (EXIM) April 25, 2014 in Washington, DC.

SolarCity, the residential solar company billionaire Elon Musk cofounded, reported a loss on Tuesday night.

The stock is now down 61% decline for 2016 to date.

Tesla, the carmaker founded by Musk, is down 39% for the same period.

Both companies have been punished as Wall Street analysts have started asking more probing questions about their cash flow and forward guidance.


Morgan Stanley analyst Adam Jonas, who’s become famous on Wall Street for his far-out notes about the endless possibilities of electric car technology, lowered his price target from $450 to $333 last week.

Yes, the technology is cool. But the delays on the Model X SUV are not. Neither is what could happen to Tesla’s cash flow if the company doesn’t deliver on the Model X.

Tesla in 2016Yahoo FinanceTesla in 2016

From a note earlier this week:

The potential impact on cash flow could be more significant than the market has anticipated and the market timing potentially compounds the issue. In our recent note and price target reduction to $333 from $450, we factored in a greater level of cash consumption into our earnings model in part to factor in higher levels of launch-related engineering expenses to ensure a high quality ramp of the Model X sufficient to deliver on our estimate of 15k units in 2016.

Suddenly — and this seems to be a trend in 2016 — analysts are really starting to look at the cash Musk’s companies have on hand.


SolarCity missed on earnings on Tuesday night, reporting a Q4 loss of $2.37 per share and lowering its guidance for Q1 2016. CEO Lyndon Rive said that he expected the company to grow 40% in 2016, and become cash flow positive by Q4 2016 despite construction set backs and a shut down of operations in Nevada.

Analysts on the call had one question. What’s the catalyst?

CFO Tanguy Serra passed on those questions, and skipped reporting a quarter of guidance. He’s new, and said that he was just getting into the flow of creating guidance for the company.

“My bad,” Serra said on the call.

Solarcity YTDYahoo FinanceSolarCity YTD

On Wednesday S&P Global Market Intelligence reduced its 12-month price target on the stock to $25 from $60. The stock opened the trading day at $19.39.

So maybe things will turn around?

Tesla reports earnings Wednesday after the bell. We’ll be following along here.

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