Today TSLA stock erased all of the gains it notched on Monday, thanks largely to an ultra-bearish analyst report that has arrived the day after an ultra-bullish analyst report drove the shares to a new record high. In short, one firm expects the automaker to keep posting losses until 2020, while the other whipped investors into a frenzy over its Gigafactory. One firm doesn’t think Tesla’s vertically-integrated business model will work very well, while the other sees it as a huge advantage.

A “heavy heart” over TSLA stock

Jefferies analyst Philippe Houchois initiated coverage of TSLA stock with an Underperform rating and $280 price target in a report dated today. He started his note off on a rather melodramatic note, writing that he’s initiating coverage of the stock with this rating and price target “with a bit of a heavy heart.” He does see the company’s achievements thus far as “impressive” but warns that he sees its vertically-integrated business model as a potential problem.

He feels that Tesla’s business model is particularly problematic as far as scalability is concerned. He doubts that the automaker can deliver gross margins of 30% to 35%, which he defines as “consistent with attractive returns in a vertically integrated business.”

One reason is because the company’s product mix is falling faster than the size and cost of its batteries. He also doubts that Tesla will see any benefits from its Gigafactory as he believes that manufacturing batteries will be a “low-margin business” at best because of price deflation paired with inflation of material costs. Further, he feels that depreciation is “catching up” to Tesla quickly.

Why he’s more pessimistic about TSLA stock than most

The Jefferies analyst also explained why he is even more pessimistic about TSLA stock than the consensus, as he expects the company to keep reporting losses until 2020. He thinks the consensus is expecting too much from depreciation and selling, general, and administrative expenses being compressed to the levels of traditional automakers which do not have a vertically-integrated business model. He’s also more pessimistic on Tesla’s interest expenses and its ability to shift the market away from its Resale Value Guarantees.

As Houchois dumped a massive truckload of cold water onto Tesla’s vertical integration, one thing we would add here is one company we once heard a lot about in terms of comparisons with Tesla. Chinese electric bus maker BYD, which was backed by Warren Buffett, is actually quite different than Tesla, which is probably why the comparison talk stopped, and one of the key differences has been its much greater degree of vertical integration.

While Tesla and BYD are operating in two completely different markets and target different segments of the automotive market, BYD has demonstrated that vertical integration is possible for automakers. However, the Chinese company also makes more than just vehicles, so it’s still early in Tesla’s business model to know whether it will work.

Praise for Tesla’s Gigafactory

Houchois’ note today seems like a direct challenge to Baird analyst Ben Kallo, who released his report on TSLA stock on Monday. Kallo is about as bullish on TSLA stock as Houchois is bearish on it, and one of the things he likes the most about Tesla is its Gigafactory, a major part of the company’s vertical integration. Unlike Houchois, Kallo feels that Tesla’s efforts in cost reduction and capacity expansion, which feed into its scalability, are on track. According to him, the Gigafactory will give Tesla a significant advantage in battery costs over its competitors because of its scale.

The Baird analyst said on Monday that activity at the Gigafactory has ramped up since his tour of the facility in January, and he estimates that the facility is just 30% to 35% complete. Tesla wants to produce 50 gigawatt-hours of batteries next year, which would be enough to build 1 million Model 3 cars next year. Considering that the automaker says it has orders for about 500,000 Model 3s, it really needs those roughly 1 million batteries to dig out of the mountain of orders it claims to have. Tesla offers cars with various battery sizes, so by making multiple models, it may not get 1 million vehicles out of that 50 gigawatt-hours.

The story of TSLA stock

One of the reasons TSLA stock has been so polarizing is because it is largely a story stock at this point. The company doesn’t yet have the fundamentals to support its stock price, and even CEO Elon Musk knows this. Baron Funds’ second-quarter report, which was obtained by ValueWalk, offers some of the warm-and-fuzzy sentiment that’s been driving TSLA stock.

In his letter contained in the report, CEO Ronald Baron offered up several qualitative, as opposed to quantitative, reasons he sees TSLA stock in a bullish light. For example, he reports that the automaker often is able to buy parts at better prices than its competitors can even though it requires “precision engineering, quality materials, and functional design resulting in minimal waste.” He believes that vendors are willing to offer lower prices is because they “think Tesla’s engineering skills and designs will make them better suppliers.

Additionally, he reports that General Motors CEO Mary Barra has told her supply chain to use Tesla’s suppliers, even if their prices are higher. According to Baron, she sees this as a way to reduce warranty and maintenance costs, improve safety and enhance her company’s reputation. He also had a chance to meet a venture capitalist and engineer who knows both Musk and Tesla CTO JB Straubel and believes that no one is better than they are at battery technology. Thus, Baron’s unique way of researching TSLA stock led him to conclude that it could be an attractive long-term investment.

TSLA stock retreats after latest record high

TSLA stock surged by more than 2% on Monday to settle at a new all-time high of $389.61 in intra-day trading. The last time TSLA stock reached a record closing high was in June at $383.45. The shares tumbled by as much as 2.49% during regular trading hours on Tuesday, falling as low as $374.27 before the bell.