Stocks

Tesla Motors Inc Stock Shockingly Stable After Ultra-Bearish Report

Bank of America analysts bumped their price target for Tesla down by $5

Tesla Motors shares have been little shaken thus far by a report from Bank of America analyst John Lovallo, who questioned several elements of the automaker’s fundamentals and prospects. This is pretty surprising given how low his price target for the company is.

Tesla Motors Inc Stock Shockingly Stable After Ultra-Bearish Report

A teeny-weeny price target for Tesla

Lovallo may be Tesla’s biggest bear on Wall Street, as he’s slashed his price target from the already-small $70 to an even smaller $65 per share. In other words, he’s predicting that shares of the EV manufacturer will tumble by almost 70%. That’s a pretty bold expectation.

Tesla stock has begun to struggle recently, as the automaker disappointed in its fourth quarter earnings report, coming up a bit shy of guidance for deliveries. Nonetheless, it still remains over $200 a share—a far cry than the $65 Lovallo thinks it’s worth.

What’s wrong with Tesla?

So why is the Bank of America analyst so anti-Tesla? He calls the automaker’s long-term targets “quite difficult to fathom,” noting the recent earnings disappointment and “a steady stream of negative news.” He thinks Tesla shares are overdue for a significant correction, particularly because he sees “a long road of challenging financial results and cash burn” for the foreseeable future.

Lovallo just doesn’t see a future for Tesla, but his ultra-bearish view certainly seems as outlandish in the opposite direction as the ultra-bullish views held by some like Morgan Stanley analyst Adam Jonas. Even Jonas reduced his estimates recently after admitting that Tesla has a rough road ahead of it for the near future. He played down the concerns about cash burn though, playing the yin to Lovallo’s yang over Tesla.

How do we value Tesla?

And so we’re back to the question that has plagued Tesla for years. How does Wall Street slap a valuation on the EV manufacturer? Bears see no future, and bulls see nothing but the future. One thing about Lovallo’s latest report that’s especially bold and probably unrealistically bearish is his valuation.

As Business Insider‘s Matthew Debord points out, shares of Tesla haven’t traded at the levels of Lovallo’s price target in nearly two years. In other words, Lovallo seems to think the company’s stock “should be priced with a year and a half of Model S production rolled back,” writes Debord.

Does Tesla need a smoke screen?

Lovallo blasted Tesla management’s comments about plans to use the company’s battery technology for more than just its cars. The technology has a perfect place in energy storage, and the Bank of America analyst seems to think this is nothing but a smoke screen to keep investors from thinking about the fact that Tesla missed its delivery guidance for 2014. Debord disagrees, however, noting that back when Tesla was struggling to fulfill orders for its Roadster, management talked up the drivetrain business, which they said was profitable at that time.

Tesla is currently in the process of building its gigafactory, and bulls have been harping about the potential of using those batteries for more than just cars. The fact that Tesla management has confirmed those speculations is really just an addition to the company narrative.

This year will certainly be an important one for Tesla from a financial standpoint, as Wall Street will be very unhappy if the automaker keeps missing its targets. However, bulls are liable to stick with the company throughout the year.

The expected cash burn and extreme levels of capital expenditures are out in the open, with Tesla management warning about them in the recent earnings call. So unless things get crazy-bad this year, it seems very doubtful Tesla stock will fall all the way to $65 per share. Then again, Jonas’ $280 per share price target seems just as unlikely—at least for now anyway.

As of this writing, shares of Tesla Motors were up by 0.39% to $204.91 per share.