Tesla CEO Musk’s Package Underlines Big Ambitions.
But If Model 3 Ramp-up Stumbles, All Bets Are Off.
Tesla Inc CEO Elon Musk grabbed the headlines again with news of his new compensation package which eschews a salary in favour of reward based solely in stock.
Stage one provides that if the capitalisation of Tesla reaches $100 billion, and revenues hit $20 billion or EBITDA earnings reach $1.5 billion, Musk gets 1 per cent of Tesla stock. There are 12 stages peaking at $650 billion. Tesla capitalisation is currently close to $60 billion.
Barclays Equity Research said it liked the impact this was likely to have on Tesla’s stock price, and that this reaffirmed Musk’s commitment to the company. On the other hand, the concentration on the stock price mean things like the cash burn problem might not be taken seriously.
Meanwhile Tesla pushed back production targets for the crucial Model 3 again, but bulls and bears retained their opposing views on the company’s future.
And investors still expect Tesla will have to raise more money soon. Others praised its resilience to bad news.
Model 3 production slow
Tesla sold 1,550 Model 3s in the fourth quarter, much lower than expectations, and put back the target of making 5,000 a week to the end of 2018’s first half. Analysts had predicted almost 16,000 sales in the fourth quarter. The previous target for 5,000 a week production was the end of the first quarter.
Long term Tesla critic, The Wall Street Journal Heard on the Street columnist Charely Grant, said positive Tesla investors’ dreams show no signs of turning into reality.
“The bulls should reconsider. The premise of the stock’s sky-high valuation has long been of Tesla eventually dominating the auto industry. That notion has hardly ever seemed more fanciful,” Grant said.
“Meanwhile, Tesla’s cash-burn issues show no sign of resolution, debt is mounting, and competition from rival auto makers is picking up. Tesla’s business depends on raising fresh money from investors, so keeping the share price high is crucial,” Grant said.
In a previous column, Grant said Tesla CEO Elon Musk should concentrate in 2018 on building up production of its crucial Model 3, and spend less time musing about possible new products like the semi truck, sports car and pickup truck.
Morgan Stanley analyst and Tesla fan Adam Jonas pushed back his production forecasts for the Model 3, and doesn’t expect the 5,000 a week rate to be reached by the end of 2018, but retains his faith and advised investors to buy Tesla shares if the price falls.
“We continue to view Tesla as a high risk investment. The upside to our $379 price target should be seen from the perspective of elevated risk. While there is a ton of attention around the ramp of Model 3 in early 2018, we continue to believe the greater risk to the stock involves encroachment from tech firms with adjacent data monetization opportunities in the mobility ecosystem,” Jonas said.
Investment researcher Evercore ISI retained its cautious stance on Tesla, saying investors should hold back until Model 3 production issues become clearer. But it cut its Model 3 production projection.
“We believe Model 3 deliveries are more likely to finish the year in the 180,000 to 220,000 range and not the 258,000 which we had previously forecast. Roughly a 23% cut at the mid-point. Are Tesla’s new targets achievable? They are certainly easier. However, we believe visibility remains clouded until Model 3 production is consistently running at a weekly rate in excess of 1,000 units,” Evercore ISI analyst George Galliers said.
Hear on the Street’s Grant can’t see any positives.
“Faith in Mr Musk has taken the company a long way. But eventually, financial and operational realities will carry the day,” Grant said.