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Tesla shares were on track for their biggest one day decline in more than 2 months on Thursday after the electric automaker posted a wider-than-expected first quarter loss and as some second guessed the company’s ability to hit its delivery target.
Shares in the Palo Alto-based automaker fell 5.1 per cent to $295.47 after the company said its quarterly loss widened to $330.2m or $2.04 a share in the three months ended in March, compared with $282.3m or $2.13 in the year ago period. That was deeper than the loss of $1.17 a share than analysts had forecast. Adjusting for one-time items, a loss of $1.33 a share was also greater than Wall St expectations.
Moreover, while Elon Musk said the company remains on track to produce 5,000 of its eagerly awaited mass market Model 3 vehicles a week by the end of this year and 10,000 a week before the end of 2018 — some have expressed the company’s doubts about meeting that goal.
“We maintain our sell rating on Tesla – predicated upon a pushed out Model 3 launch curve where we ultimately believe the company will miss its targeted production rates,” David Tamberrino, an analyst at Goldman Sachs said. “On that front, industry checks have continued to point to concern among Tier II and Tier III suppliers on final designs.”
The jitters about Tesla’s ability to meet production deadlines come after the falcon-winged Model X launched with a two-year delay and as some expect production glitches to make it challenging for the company to boost auto production from about 80,000 last year to its stated goal of 1m in 2020.
Analysts at JPMorgan also noted that they were cautious given the “potential for a slower than guided start to Model 3 assembly” and cautioned that “the potential for Model 3 per-orders cancellations may increasingly become a point of investor concern”.
There has also been some concern of the so-called Osborne effect — a negative outcome that the announcement of a future product has on a company’s existing product — tied to the Model 3 which is expected to launch later this year as customer deposits declined for the second consecutive quarter.
“Customer deposits were down nearly $50m, which along with commentary around how the Model S is still better than the upcoming Model 3, might indicate an Osborne effect in S/X orders,” Brian Johnson, an analyst at Barclays said.
Mr Musk said on the earnings call that he took “full responsibility” for the confusion surrounding the branding of its mass market vehicle noting “we want to be super clear that Model 3 is not version 3 of our car”.
And finally, there were concerns about other tech giants that could ramp up their efforts to disrupt the transportation industry. “Tesla investors are charged with the delicate task of balancing greed and fear” Adam Jonas, an analyst at Morgan Stanley noted. He said:
The next 6 months could play a very profound role in determining how large Tesla’s market really is and how profitable/sustainable the company is in its current form. We also expect the next 6 months could see the unfolding of any number of events from competitors (not referring to traditional auto manufacturers) that could potentially change the lens through which investors view Tesla’s long term sustainable moat.
Which is not to say the results were all bad. Tesla’s quarterly revenues climbed more than expected, gross margins were solid. The company’s operating cash outflow fell and after the latest round of capital raising it has $4bn in cash on hand ahead of the Model 3 launch. Moreover, Tesla bulls often argue that short-term profits are not a major concern for the disruptive company.
But on Thursday, it was the Tesla bears that seemed to win out.