Tesla Motors Inc (NASDAQ:TSLA) shareholders are angry. The firm’s stock dropped 14% of its value and many are still wondering why. The culprit, according to many of them, is Goldman Sachs. Can they possibly be right about such a thing?
Goldman published a report yesterday that put a $84 price target on Tesla. The company’s stock fell all day. The events were sequential, but that doesn’t necessarily mean the first caused the last. Goldman Sachs Group Inc (NYSE:GS) is not truly responsible for Tesla Motors Inc (NASDAQ:TSLA) price collapses, and here’s why:
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Goldman Sachs’ Impossible Model
Tesla Motors Inc (NASDAQ:TSLA) is a company almost impossible to model. The firm is, as so many analysts are fond of saying, disruptive. It’s also small. These factors make its future sales extremely difficult to model. Over at Forbes today Mark Rogowsky does a little of his own sales analysis, and demonstrates the dangers inherent in the process.
His own model, which appears to be built by looking at car markets and putting fairly arbitrary portions of them in Tesla Motors Inc (NASDAQ:TSLA) hands, is fairly typical of general model building when the industry is too complex, and you’re looking too far forward. Goldman Sachs thinks Tesla will sell the Generation 3 for $35,000. Their Generation 3 hasn’t even been designed as far as we know.
Tesla’s Weak Price Support
The inaccuracy of the models presented in this fashion mean that they are rarely responsible for huge drops on Wall Street. Traders know these reports aren’t all that accurate. They’re useful as an experiment in projection, and may give some insight into the stock, but they should not be seen as promises.
What happened to Tesla Motors Inc (NASDAQ:TSLA) was not this report. The electric vehicle manufacturer is a victim of its own growth. Tesla Motors Inc (NASDAQ:TSLA) is a stock whose value is based almost entirely on future expansion. The cloud of possibilities inherent in pinning a stock to the future means that investors get nervous.
Tesla Experiencing Investor Angst
After riding the Tesla Motors Inc (NASDAQ:TSLA) wave for so long and managing outsized gains, many investors have become risk averse. They know Tesla’s weak price support means it could fall a huge fraction in a single day. They get out quickly when things get shaky. It’s a self-fulfilling prophecy.
Tesla Motors Inc (NASDAQ:TSLA) is the same company is was yesterday. A single Goldman Sachs Group Inc (NYSE:GS) model did not collapse the price, investor angst did. A Goldman report will not bring it back to $127, investors confidence will.