Tesla’s support from analysts and Wall Street investors appears to have passed through the honeymoon phase, as witnessed by responses to CEO Elon Musk’s “Master Plan, Part Deux.”
Auto analysts and Wall Street investors, many of them friendly to Tesla’s leader in the past, responded largely with skepticism to Musk’s announcement released on Wednesday evening. The statement was a bit vague and unclear on the automaker’s strategy to become profitable, critics say.
Master Plan, Part Deux includes expanding the Tesla vehicle lineup into all major segments including pickups, SUVs, mass-transit vehicles, and heavy-duty trucks — all of which would eventually be self-driving. He also said Tesla’s plans include its consumer vehicles working as autonomous taxis when the owner isn’t driving. Musk had been building interest in the announcements for more than a week on his Twitter page.
Tesla shares were down the next day, closing at $220.50 per share on Thursday, off 3.4 percent.
“The main thing that was missing was any type of commitment to shareholder return or to actually become profitable,” said Dave Sullivan, AutoPacific manager of product analysis. “If you have shareholders, you have an obligation to them. … There was no discussion on how to become profitable.”
Musk further announced his intentions to combine the automaker with SolarCity — a solar panel company of which Musk is chair and leading shareholder and which is run by two of his cousins — into a cohesive company delivering solar power and energy storage. The $2.86 billion proposal to acquire SolarCity, announced last month, sparked the first wave of backlash by Tesla shareholders and analysts. Tesla has never reported a net profit selling high-end luxury electric vehicles, and there is doubt that a move to solar will help get Tesla into the black.
“Separately, while we think Tesla’s new master plan may build a long-term technological monument, we think it will create a short-term cash flow sink hole,” Efraim Levy at S&P Global Market wrote in a research note to investors. “Musk’s new plan changes the investment thesis from an automotive technology leader heading to the mass market with self-driven sustainable profitability, to a company that will continue to dilute value for existing shareholders.”
Musk’s announcement late Wednesday follows a rocky month for Tesla. Soon after the SolarCity controversy, the company went on the defensive after a fatal Florida crash that spurred an investigation by U.S. safety regulators. A key manufacturing executive departed for Facebook Inc. Tesla drew more criticism after missing its first two quarterly sales targets.
S&P Global, formerly McGraw Hill Financial, lowered its 2016 earnings per share estimate by 30 cents to 40 cents and next year’s by 70 cents to $2.90, due to reduced revenue expectations.
Not all analysts responded negatively to the plan. Morgan Stanley’s Adam Jonas, a longtime supporter, said the plan did not change his views or $245 stock price target.
“Given the company’s rate of cash consumption, to put this innovation into action, Tesla must fund the plan with large amounts of external capital,” Jonas wrote in a note to investors. “Tesla management have demonstrated a strong ability to convince investors of the validity and scope of its business and technological ambition.”
Jonas said the plan “is pretty darn down the middle of the fairway of our expectations. With one exception: Tesla Semi.”
Musk said Tesla plans to unveil its “heavy-duty trucks and high passenger-density urban transport” in 2017. He said both are in early development.