Tesla Stock Is Oversold: Analyst

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Tesla Inc (NASDAQ:TSLA) finally started recovering on Thursday, but the day’s small gains aren’t anywhere close to what’s needed to recoup the value that’s been lost this month. Tesla stock is on track for its worst month and worst week ever, as multiple problems have plagued the company over the last 30 days or so.

Tesla stock plunges 20% in a week

In a note this week, KeyBanc analyst Brad Erickson said he believes Tesla stock is now oversold, although he decided not to upgrade it. He believes the deadly accident involving an autonomous Uber vehicle that struck a pedestrian is also having an impact on Tesla. Uber, NVIDIA and some other companies have paused the testing of their self-driving technologies following that accident. Erickson believes that it could be causing some investors to question whether any company will be able to achieve level five autonomy in vehicles. In fact, he thinks the Uber accident is putting the most weight of all the negative factors weighing on Tesla stock right now.

The company’s own recent fatal accident certainly didn’t help matters, especially when it was revealed that the National Traffic Safety Board is investigating to determine if Autopilot was active at the time of the crash. However, Erickson believes that the deadly wreck that killed a Model X driver adds “almost nothing incrementally to the story,” and neither does Moody’s downgrade of the automaker’s credit rating, which was widely expected before it even happened.

Tesla stock looks oversold??

Erickson also argued that he believes Tesla stock is now oversold, although he noted that it’s no surprise that people would be skeptical of his view. He believes TSLA is oversold “because people love the cars and the CEO is Elon Musk.” He also addressed the short crowd, essentially say that they’re playing with fire,

“Continuing to press the short at these levels given the data points likely to emerge in the near term means believing either demand will plummet and/or the Company will lose the ability to raise capital,” he said.

The view that Tesla will no longer be able to raise capital is becoming more and more common now. One fund manager said earlier this week that he sees bankruptcy in the company’s future within four months, and a key part of his thesis deals with the automaker’s cash burn problems.

Erickson also said he’s not ready to upgrade TSLA stock yet because he remains skeptical in the long term on Model 3 production, demand and profitability. He thinks bulls are just too optimistic in seeing the company as “the superior automotive innovator in the areas of manufacturing, batteries, software, AI and competition.”

Model 3 problems still affecting Tesla stock

The Model 3 ramp also continues to be a problem for TSLA, but Erickson said his checks with 17 service centers do suggest that volumes are indeed going up, although they still seem to be coming up short of 2,500 per week. He expects Model 3 deliveries for the first quarter to be at 8,500 or just below.

Deutsche Bank analyst Rod Lache also released a report on Tesla stock this week, noting the steady onslaught of bad news that has been rolling over the company all month long. TSLA is expected to report the number of vehicles it delivered in the first quarter on April 3, and Lache expects another miss. His checks point to an average of about 800 of the mass-market cars per week and believes production is just now getting close to 1,100 per week. TSLA management had said they were aiming to be producing 2,500 Model 3 cars per week by the end of the quarter.

Lache also spoke to the topic of cash burn in his note, and he said if lowering his Model 3 delivery estimates for the rest of this year, he comes up with an estimated cash burn of $1.7 billion, versus the $825 million he estimates right now. The automaker ended last year with $3.4 billion in cash, which is plenty to support the amount of cash burn he expects.

Still, the Street is getting more and more concerned about if the automaker will ever be able to achieve its production targets, and Lache believes the burden of proof has shifted. He feels TSLA “wil have to provide greater evidence (and transparency), illustrating that their production model (and their financial model) is sound.” He maintains his Neutral rating on Tesla stock.

After starting out the day in the red, TSLA stock climbed by nearly 2% in intraday trading on Thursday, rising as high as $270.96 per share.

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