Tesla analyst split comes down to tech believers versus car guys

By Bloomberg   |   25 May 2017   |   3:12 am  

Tesla

The Wall Street split on Tesla Inc. boils down to analysts who see the next Apple Inc. and those who perceive a lot more similarity with Studebaker.

Most of the seven analysts who rate the stock a buy are focused on coverage of technology companies, while a majority of the six who advise investors to sell are dedicated to automobiles, according to data compiled by Bloomberg and Sanford C. Bernstein & Co. While the tech folks are honing in on the potential for disrupting the century-old industry, those who concentrate on manufacturing efficiency and vehicle reliability see the stock’s valuation as out of line with reality.

The issue was highlighted in a note from Bernstein on Tuesday, which featured technology analyst Toni Sacconaghi making the bullish case for Tesla and autos analyst Max Warburton arguing that shares should head lower from here. After the stock’s 42 percent surge over the past year, it now trades well above the average target price from analysts surveyed by Bloomberg.

“Tesla is a disruptive company, with a once-in-a-generation leader,” Sacconaghi wrote. “It is the next Apple Inc., Netflix Inc., Amazon.com Inc., and Elon Musk is a uniquely visionary leader with track record of doing the impossible.”

He sees electronic vehicles composing almost 40 percent of auto sales within two decades, and says Tesla is well positioned to take advantage of the shift as one of the first manufacturers and one of the brands with the best reputation among consumers.

Warburton, the auto analyst, disagrees. He cites the company’s inability to make money so far, the sky-high price for its automobiles and concerns about quality.

“Tesla’s single biggest challenge now is to ramp up production, yet its manufacturing capabilities are dismal, its quality poor and its approach wild,” he wrote, adding that he expects output of the Model 3 to take much longer to accelerate than Musk is claiming.

The note comes after one of Tesla’s biggest bulls, Adam Jones of Morgan Stanley, downgraded the stock earlier this month on worries that competition will increase from large tech firms like Alphabet Inc. and Apple, and expenses being higher than he had previously expected.

The debate has been heating up on Wall Street lately as to what the future of Tesla looks like, with Musk himself jumping into the debate on Twitter. While the stock is sitting near record highs, short interest is also elevated at 27 percent, compared with 7 percent at Netflix and 10 percent at Twitter.

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