Wall Street to Tesla: ‘What happened?’

Tesla is at a crossroads – and appears to be falling out of favour with Wall Street.

Amid an NTSB investigation into a fatal Model X crash earlier this month, reports of ongoing “production hell” for its Model 3 sedan, and free cash flow issues, the electric-car maker has received a slew of downgrades and price target slashes from sell-side analysts.

“Tesla’s was going to reinvent car manufacturing, what happened?” UBS analyst Colin Langan asked in a note to clients Thursday morning. He has a $US95 price target for the stock, 33% below where it was trading Thursday.

Like other analysts, including Adam Jonas of Morgan Stanley and Brian Johnson of Barclays who both issued bearish notes this week, Langan remains sceptical of the company’s recent announcement that it won’t need to raise any more cash this year.

“Despite TSLA claims, we believe a capital raise will be needed, at minimum to support its ambitious plans for the Semi, Roadster, Model Y, and needed infrastructure and service center expansion,” he wrote. “The key question regarding a capital raise is whether TSLA approaches the market with good news or bad news.”

Of course, hawking fresh bonds to investors after falling behind on production schedules won’t be easy. In March, Tesla bond prices plunged to an all-time low of 88 cents on the dollar just days after Moody’s downgraded the company’s corporate rating one notch to B3. When the fixed-income coupon was originally offered last August, demand was so great that the round was upped to $US1.8 billion from $US1.5 billion.

“While production issues appear fixable, the potential reputational risk from poor quality reports may not be,” Langan says.

If Tesla is going to get to profitability this year as CEO Elon Musk has claimed, it won’t be easy. Analyst polled by Bloomberg expect the company to post a loss of $US3.34 per share when it reports first quarter earnings on May 2 – in what Morgan Stanley said earlier this week is the “most critical time in Tesla’s history since the Model S launch six years ago.”

Shares of Tesla are down 8% since the beginning of the year.

Tesla stock price