Tesla stock tumbled on Monday on a hodgepodge of different headlines varying from the company’s mass firing supposedly based on performance to a report that some people are selling their Model 3 reservations. Meanwhile, an analyst warns that Tesla stock will track Model 3 deliveries; the mass firing hardly bodes well for that if he’s correct.
The combination of the mass firings and the analyst call saying that Tesla stock will track Model 3 deliveries is a bad combination. The company missed expectations for third quarter deliveries and said that production bottlenecks vastly limited the number of Model 3 cars it could deliver during the quarter. Obviously firing hundreds of workers will only increase this bottleneck, and if Tesla stock is going to track the Model 3, then things suddenly look worse for the buy-side.
The Mercury News reported late last week that Tesla had fired “hundreds” of workers, including engineers, factory workers and managers. The automaker said the dismissals were due to its latest company-wide review, adding that they were performance-based rather than layoffs. Other workers reportedly received bonuses or promotions, and Tesla is now searching for new employees to replace those whose performance was too weak to keep them employed there.
Workers who spoke to The Mercury News estimated that 400 to 700 employees were fired, although Tesla would not give a number. The workers reportedly felt like the automaker targeted the former SolarCity division and the Model S and Model X segments, which would make sense if the company is truly concerned about ramping Model 3 production.
Oppenheimer analyst Colin Rusch said in a note on Monday that Tesla stock will track Model 3 deliveries, so any further production bottlenecks — particularly if the company itself causes them by firing hundreds of workers — could send the shares into freefall. Tesla had been aiming to produce 1,500 Model 3 cars by last month and is targeting 5,000 a week by the end of this year. However, the mass firings make this target seem even less attainable than it was before.
In his note on Monday, Rusch said he met with a number of Tesla executives and investors last week. He also explained that the delayed production ramp for the Model 3 is “due to a small number of suppliers failing to deliver on time.” Further, he said that at least one of the suppliers “has been fired and replaced by insourcing.” Tesla executives reportedly told Rusch that all of the equipment for the Model 3 production line has now been installed and cars are moving through the line.
He maintained his Model 3 shipment forecast of 3,005 this year out of a total of 100,056 deliveries this year but slashed his losses estimates dramatically. He now projects adjusted losses of $7.02 per share for Tesla this year, down from $4.95 per share before.
The mass firing at Tesla comes even though the EV maker could manufacture only 260 Model 3 cars in the third quarter, making the 450,000-strong waiting list for the car seem even longer. MarketWatch found several Craigslist ads from people who were selling their Model 3 reservations for a more than 300% profit, although it’s unclear whether those sales will be honored. The fine print on the reservation states that Tesla will decide whether each transfer will be honored, apparently on a case-by-case basis.
The reason this could be considered bad news for Tesla is because investors will rightfully question why people are selling their reservations. Is it merely to turn a hefty profit on a car they are willing to wait many years for, or did they decide that they no longer want their Model 3? It’s an important question because analysts at other firms have begun to weigh the possibility that people will get tired of waiting their Model 3 and will end up canceling their reservation. But why cancel when you can turn a 300% profit off your reservation? And if Tesla can’t fix its production bottlenecks, more prospective buyers will probably cancel their preorders or try to sell them to the highest bidder.
On Monday during regular trading hours, Tesla stock fell as low as $347.16, a 2% decline.