TSLA Stock Attracts a Ton of Short Sellers
Tesla Motors Inc (NASDAQ:TSLA) has a long list of critics, including analyst John Murphy from Bank of America Corp. Murphy recently put a $155.00 price target on TSLA stock, which would be a 30% decline from where its share price sits today.
Murphy thinks Tesla stock is drastically overvalued when measured in raw numbers. For instance, the company raised $750 million in the third quarter of 2015. All of the cash was gone by year-end because TSLA stock is a cash-guzzler. (Source: “Bank Of America: Tesla’s Stock Headed To $155,” Benzinga, May 23, 2016.)
It devours capital at a rapid clip, but that doesn’t seem discouraging to many investors.
Last month, the company raised $2.0 billion in fresh stock to pay for the production of the “Model 3.” Murphy thinks it is a waste of good capital, since Tesla has raised cash every year since 2010. It has never managed to rein in its cash burn.
“With roughly $1.4 billion of cash on its balance sheet at the end of 1Q16, and an estimated quarterly cash burn rate of ~$(400)+ multi-million, we believe the incremental capital, as well as a full-draw down on its existing ABL, will likely only sustain TSLA through 2017,” Murphy explained. (Source: Ibid.)
In plain English, that means Tesla can’t control its spending. Murphy is insinuating that even reaching scale with its Model 3 production won’t be enough to balance Tesla’s financials. According to him, the company hasn’t earned credibility on that front.
On top of those criticisms, he is also skeptical of Tesla’s promise to make 500,000 cars in 2018. He thinks that Musk is being “optimistic at best” and that he is doing so at “the expense of shareholders.” (Source: Ibid.)
Considering it thinks Tesla has 30% downside risk, it’s no surprise that Bank of America is maintaining an “Underperform” rating on Tesla stock. I should add that “Underperform” is Wall Street speak for “Sell.”
Whether or not you agree with Murphy, his views are considered important by other traders and analysts on Wall Street. That means this report could sway perceptions of TSLA stock.
He isn’t alone either. Other big names, like hedge fund manager extraordinaire Jim Chanos, are bearish on Tesla’s outlook. In fact, Chanos has added teeth to his censure by selling Tesla stock short. He put money on the line.
Tesla can prove Murphy and Chanos wrong by turning cash positive in 2017 and producing 500,000 cars in 2018. Perhaps then its critics will be silenced. But until then, these criticisms will fester like an open wound.