Tesla's stock drops as investors question Musk optimism
SAN FRANCISCO — Tesla stock dropped 5% Thursday as investors expressed skepticism over CEO Elon Musk's plan to accelerate and ramp up deliveries of its electric vehicles, with the downdraft likely exacerbated by short sellers.
The retreat in Tesla shares (TSLA) comes a day after shares jumped as much as 7% in after-hours trading Wednesday after the Palo Alto, Calif.-based company announced first-quarter earnings that showed a loss narrower than the Street forecast.
On a call with investors Wednesday, Musk said the company planned to accelerate its goal of producing 500,000 cars — most of them its forthcoming entry-level Model 3, for which it has received 325,000 $1,000 deposits — by two years to 2018.
But some analysts and investors don't share Musk's optimism.
“Despite Tesla’s narrower than expected loss, the company is down $75 million on the quarter," says Mark Williams, an analyst with Kelley Blue Book. "Delivering 500,000 units by 2018 may prove to be a tough task. Tesla collected an estimated $400 million from refundable deposits on the Model 3, but may need to seek out more after announcing a 50% increase in capital expenditures. The pressure from building a Gigafactory (battery plant), delivering units ahead of schedule, and replacing valuable resources is going to pose some interesting challenges for the Tesla brand.”
Shortly before announcing earnings Wednesday, Tesla announced that two key executives — former vice president of production Greg Reichow and Josh Ensign, vice president of manufacturing — would be leaving the company.
The Street's Jim Cramer said on CNBC Thursday that Musk "is getting away with financial murder," and called the 500,000 production target for 2018 "preposterous." But he added that while he wouldn't buy the stock, "people will touch (it) because demand is off the charts."
Tesla's market cap has lost around $2 billion in value in the past hours, dropping Thursday to $27 billion. Volume was running about double the daily average.
Efraim Levy at S&P Global Market Intelligence keeps his rating at a sell, noting that "while pre-orders suggest demand could be there (for the Model 3), with recent executive departures and more competitive offerings, this may be tough to achieve.” He also thinks that Tesla will now likely need outside funding to support its objectives.
With Thursday's drop, Tesla shares are down about 12% for the year — and 26% from a 52-week high reached in July. Still, they've risen about six-fold in the past three years, as investors have anticipated that kind of sales momentum displayed by tech growth stocks rather than manufacturing companies. This red-hot share growth, on the back of quarterly losses, has attracted short sellers, the investors who make money when stocks fall. About one-fifth of shares outstanding are shorted.
Short sellers have been piling back into the stock this week, according to financial analytics firm S3 Partners.
"We’ve seen $500 million of new short activity in the last couple of days and $100 million today," wrote Ihor Dusaniwsky, head of research at S3 Partners. "With Tesla’s price on a steep downward trajectory we may be testing new borrow highs and rates in the next several weeks."
Some investors took to Twitter to express their skepticism over Musk's plan, questioning whether a company that was still having problem delivering its new Model X at a production rate of 50,000 cars in 2015 could possibly stamp out ten times as many cars in just two years' time.
Excluding certain items, Tesla's non-GAAP loss narrowed to 57 cents a share, or $75 million, better than what analysts polled by S&P Global Market Intelligence expected. Revenue was $1.15 billion — beating the year-ago quarter figure of $939 million — or $1.6 billion excluding certain items.
On an after-earnings call with investors Wednesday, Musk said the problems the company was experiencing with its gullwing-doored Model X would not happen on the comparatively simple Model 3, a car that he said Tesla would make money on by simplifying production and controlling most of the car's parts.
Musk said Wednesday that all his focus is on making sure manufacturing issues are ironed out so that the most cars can be make using capital that isn't wasted by production glitches. He even said his desk was currently at the end of the Model X production line, and that he frequently used a sleeping bag in a nearby office in order to spend the night at the factory.
"Tesla is going to be hellbent on becoming the best manufacturer on Earth," he said. "We take it very seriously. We need to solve all production issues if we are going to scale rapidly and make the cars more affordable. The message to the best manufacturing people in the world is, we want you to join our company."
Follow USA TODAY tech reporter Marco della Cava on Twitter: @marcodellacava