Telsa Inc. (NASDAQ:TSLA) and its CEO Elon Musk find themselves in the crosshairs of securities analysts after the electric car maker raised more cash-burn concerns and its top executive got testy during a conference call that analysts described as "contentious" and "truly bizarre."
The stock of Telsa was down in early trading by around US$21, or 7%, to US$280 a share as analysts cast a critical and sceptical eye at the company's financial well-being following the release of its first-quarter results.
Tesla reported a loss of US$3.35 a share, which was smaller the loss of US$3.58 a share that analysts had expected. However, a number of analysts expressed concern about Tesla's enormous debt levels and the large amount of cash it is burning through.
'The clock is ticking for Telsa'
Online investment firm AJ Bell said the company's "diminishing US$2.7bn cash position does mean that the clock is ticking for Tesla, especially as Q1’s net cash outflow from operations of US$398mln comes before capital investment of US$666mln."
AJ Bell noted that Tesla's valuation "leaves shareholders with little downside protection and the company’s US$7.4bn net debt pile and dwindling cash resources mean the pressure is on Mr. Musk and his colleagues to resolve the Model 3 production problems as fast as they can."
Analysts also took exception to Musk's demeanour during the conference call that followed the release of its results.
'Odd' and 'truly bizarre' call
UBS analyst Colin Langan said the conference call grew contentious when Musk was asked about the cash burn rate, which at US$1.1bn in the quarter was worse than UBS expected. Langan remains cautious given the cash burn, the volatile and uncertain production timeline for the Model 3, and initial quality concerns. Langan reiterated his Sell rating and US$195 price target on Tesla shares.
JPMorgan cut Tesla's price target to US$180 from US$185 after the call with Musk. Indeed, the post-earnings research note from JPMorgan analyst Ryan Brinkman was titled, "The Questions We Were Not Able to Ask on Tesla's (Truly Bizarre) 1Q18 Conference Call."
Brinkman kept his "Underweight" rating on Tesla following the results, which JPMorgan said were marked by better-than-expected revenue, margin and earnings, but accompanied by a bigger-than-expected cash outflow. Brinkman expected the stock to fall today after Musk dismissed multiple analyst questions as "dry" and "boring."
RBC Capital analyst Joseph Spak slashed his price target on Tesla to US$280 from US$305 after the "odd" conference call, saying management lacked answers to investor questions. Spak called scepticism regarding Tesla's production capabilities "warranted," but nonetheless kept his Sector Perform rating on the company's shares.
CEO did his company no favours
AJ Bell noted that such testy conference calls will not help "the company’s case if – or when – it needs to access equity or debt markets for fresh funding, something which seems quite possible given the company’s current cash flow profile."
AJ Bell said Moody’s downgrade of Tesla’s debt "does suggest the firm’s position is precarious and investors now just need to hope that Mr. Musk can deliver on his production volume targets, although the market’s reaction to the figures released by Spotify (NYSE:SPOT), Snap (NYSE:SNAP) and Tesla suggest that shareholders are becoming less tolerant of very highly-valued 'jam-tomorrow' stories and are looking for some jam (or profit and cash flow) today instead, as shown by the warm reception given to Apple’s (NASDAQ:AAPL) buyback and dividend plans."
An 'oversold' vote
A more generous view was offered by Morgan Stanley analyst Adam Jonas, who said the first-quarter report was no worse than expected. Jonas sees limited near-term downside risk in the stock but still does not view it as an attractive investment right now; he maintains an "Equal Weight" rating on Tesla shares.
KeyBanc analyst Brad Erickson went so far as to say Tesla's shares "still look a bit oversold" given a low Model 3 profitability bar to step over and likely incremental production announcements in the coming one to two quarters.