Tesla Motors Inc (NASDAQ:TSLA) shares closed down 5% on Thursday as the company put a brave face on what stepping up output plans for its upcoming Model 3 mass-market sedan would mean - spending was gearing up in step.
The topline news was that production would reach half a million all-electric vehicles in 2018 - two years ahead of earlier plans. In effect, that's a doubling of the pace. Not only is that multiple times what other model cars Tesla has produced in 2015, the company is also now talking about one million motors of the new Model 3 by 2020.
The automotives company three months ago said it wanted to achieve a profit in the fourth quarter of 2016. This week, however, it signalled nothing about profitability, and only emphasised that capital spending would rise about 50% more than previously forecast this year, to around $2.25bn.
The affable chief executive Elon Musk, who has never struggled to raise the cash needed for his pet project, said that new shares and debt will likely be issued at some point, again being vague on numbers and timescale.
But investors are being more wary than the headline-grabbing Musk about the prospects for the company. A day after Tesla shares jumped 7% in after-hours trading on Wednesday following a narrower first-quarter loss by the company that analysts had expected, Musk was helping to unwind the gains with what some punters view as an over-ambitious plan.
Tesla's market cap lost around $2bn in value in the past hours, dropping Thursday to $27bn. Volume was running about double the daily average as investors slid out the door, if not an outright stampede.
Even Standard and Poor's Global Market Intelligence analyst Efraim Levy said the 500,000 unit production target is something he doesn't expect Tesla to achieve by 2018.
As the Financial Times asked on Thursday, is the electric car about to have its iPhone moment? Well, Apple-like queues at Tesla showrooms with customers willing to put down a deposit on a car they had not even seen let alone test-driven, is testimony to why Musk clearly feels he's onto a winner.
But there is always a rub in cases of zeal. Analysts have pointed out you cannot double output for something that has yet to hatch without attracting some glitches and creases. That may be inevitable, but in the car business customers can be punishing if a motor does not come up to scratch. Reputations are difficult to repair or salvage.
Comparisons with the iPhone may also be suspect. When Apple (NASDAQ:AAPL) launched the first iPhone in 2007 it was already a pioneering but ultimately stable and solid product. Some lines may have had overheating batteries, but so did the competition. But with a succession of generations, Apple managed to adapt and improve, make slicker and brighter and faster that which was already wholesome and working well.
If Tesla hopes to draw inspiration from Apple, that's the first lesson it must learn. Instead of compromising quality and consistency with huge output numbers, it is better to have demand outstrip supply like Apple did back in 2007. It's good for business.
Analysts have also latched onto changes at Tesla this week which are ill-timed for the company's public relations and possibly more.
"Jim Chanos, a prominent short-seller highlighted executives leaving the company and previously missed production targets as negative for Tesla shares," said Jasper Lawler, analyst at CMC Markets.
As the executives worked in the manufacturing sphere, one has to ask who will replace them and will successors have some gift to achieve targets that their predecessors either could not or believed could not be reached?
Tesla, which produces the luxury Model S sedan and Model X sport utility vehicle, aims to become a high-volume automaker in a matter of years and already is valued on par with some of the biggest car companies in the world - yet plans to produce what is still a fraction of the output of automotive titans like Ford Motor Co (NYSE:F).
Tesla shares closed down 5% at $211.53 on Thursday - its lowest level since mid-March - and underperformed the Nasdaq Composite, which ended down 0.18% at 4,717.