Tesla Inc. (NASDAQ:TSLA) saw its shares ease in early trading after analysts at broker Bernstein suggested that a botched roll-out of the electric car maker’s crucial Model 3 could trigger a “moment of panic” for the stock.
In a note to clients, the Bernstein analysts pointed out that investors have given Tesla a vote of confidence recently despite the Silicon Valley firm’s substantial cash burn, which they estimate will have reached a cumulative US$10.6bn by the end of the year.
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They said: “Bears argue that this level of capital spending is unprecedented and that Tesla will inevitably run out of cash. Meanwhile, bulls argue that Tesla’s spending is par for course among high-growth companies.”
Tesla unveiled the long-awaited Model 3 in late July, with deliveries expected to ramp up in the fourth quarter.
The Bernstein analysts said: “If Tesla fails to execute in the next few quarters, i.e., low Model 3 gross margins exacerbate the company’s negative cash flow, or Model 3 quality issues overwhelm Tesla service centers and undermine the brand, then we may ultimately see the ‘moment of panic’ in the markets resulting in the possible price break in the stock and a drying up of liquidity,”
Bernstein maintained a ‘market perform’ rating on Tesla shares, with a share target price of US$265, which would represent around 23% downside from Wednesday’s closing price.
In early New York trading, Tesla’s shares were 1.1% lower at US$337. The stock has gained more than 60% so far this year.
In the regular session, shares fell 1.27% to US$336.64 each.