Tesla Inc (NASDAQ:TSLA) stock tumbled to its lowest level in months after one analyst downgraded it and an Asian publication reported that the company canceled some of its orders for Model 3 parts. Clearly the company has a lot of explaining to do next week on the earnings call after it releases its third-quarter results.
Tesla said to cut Model 3 production
When the automaker released its delivery numbers earlier this month, it revealed that bottlenecks are slowing down the production ramp for the Model 3. That shook Wall Street a bit, but then the Economic Daily News, which is based in Taiwan, reported that Tesla has cut orders from one of the suppliers that makes parts for the Model 3.
Hota manufactures gears and axles, and according to the Economic Daily News, Tesla slashed its orders by 40%, temporarily lowering the number of sets from 3,000 to 5,000 per week. The news outlet said Model 3 production bottlenecks are to blame for the order cuts. The Model 3 has widely been seen as just what Tesla needs to transform itself from a niche automaker into one that makes cars for the masses, so every hiccup along the way has rattled its stock.
The company is set to release its next earnings report on Wednesday, so analysts generally expect to hear more about the Model 3 problems on the earnings call.
Tesla stock downgraded
Today Evercore ISI analyst George Galliers downgraded Tesla stock as he said the Model 3 is “the most important piece of the Tesla investment story” for now. He said that the best-case scenario would be that the “S-Curve” of the Model 3 production ramp hasn’t changed much but has only shifted out by about six to eight weeks.
However, he doesn’t think that this is reality. He doesn’t believe that the EV maker will be able to have clear visibility on the Model 3 production ramp until it’s manufacturing more than 1,000 Model 3 cars every week. He doesn’t look for that level until toward the end of November.
At the other end of the spectrum, he warns, is if Tesla isn’t able to manufacture 1,000 Model 3 cars per week until January or, even worse, late April. The Evercore ISI analyst trimmed his price target for Tesla stock from $330 to $312 and downgraded it from Outperform to In-line. He also slashed his delivery estimates for the Model 3 for the next three years.
Tesla bulls bitten by momentum
Tesla stock has been a momentum play for years, and Piper Jaffray chart technician said on CNBC’s Trading Nation today that momentum stocks react quickly to any kind of production delays. He said that the Tesla stock chart broke “an ascending triangle” recently, and he pegs the next support area at around $290, which means 11% more downside before the next support level is reached. Thus, he doesn’t see Tesla stock as a buy until it reaches the $290s.
Tesla stock is edging closer to bear market territory, but CNBC reports that this has turned out well for those who have bought into past pullbacks. The last time the stock reached bear market territory, it had fallen 32% in seven months, but then following that, it rallied by more than 100%.
Tesla stock declined by as much as 1.65% to $320.70 during regular trading hours on Friday.