Home Technology Tesla Motors Inc (TSLA): Reasons For The Sharp Correction

Tesla Motors Inc (TSLA): Reasons For The Sharp Correction

Tesla Motors Inc (NASDAQ:TSLA) gained as much as 2% during this short trading day (Friday) after spending most of the month declining from its high near $200 a share. So does this mean the volatility is over? Probably not, although the automaker’s stock continues to be one of the most polarizing on the market.

Bulls and bears on Tesla

Although some analysts remain neutral on Tesla, others couldn’t have views which are more opposite. Take, for example, John Lovallo of Merrill Lynch and Dan Galves, Rod Lache, and the rest of the team at Deutsche Bank. Lovallo remains extremely bearish with a $45 per share price target on Tesla Motors Inc (NASDAQ:TSLA), while the Deutsche Bank team remains bullish with a $200 per share price target on the automaker’s stock.

Tesla’s correction has been in the making for some time

Most bulls and bears seem to agree that Tesla has been heading for a correction for quite some time. The team at Deutsche Bank calls the list of reasons for it “relatively long.” Of course the risks in connection with the three Model S fires and the National Highway Traffic Safety Administration investigation are at the forefront of many investors’ minds.

And then there is the uncertainty about Tesla Motors Inc (NASDAQ:TSLA)’s ability to ramp up production, particularly in light of the battery supply constraints. There are also concerns about research and development and growth in other expenses as well as whether the company will follow through on its idea of building a huge battery factory. Also the future Generation III vehicle is a major question mark in investors’ minds.

Concerns about Tesla’s production continue

Lovallo takes up the argument about production uncertainty, as well as worries about falling gross margins. He says Tesla would have to sell nearly 350,000 vehicles a year by 2020 in order to make the company worth its $15 billion market capitalization.

In terms of margins, he also remains concerned about the Generation III vehicle. While bulls place much of their positive expectations for Tesla Motors Inc (NASDAQ:TSLA) on the mass market vehicle, bears worry that it would destroy the automaker’s margins. Lovallo thinks it will be hard for Tesla to hit EBIT margins of 12.5%, which is where only the top luxury automakers are with their margins.