Musk said in a letter to shareholders that “we expect [sales of credits] to decline significantly in future quarters” and that the price of credits had already fallen. But he said that Tesla plans to have a 25 percent gross profit margin “assuming zero ZEV revenue.”
At the moment, that is just one of several uncertainties facing Tesla. J.P. Morgan’s auto analysts said in a May 9 report that “we continue to have some concerns regarding the market appeal of a more mass-market electric vehicle” and worry that Tesla could be restricted to the relatively small luxury-car niche.
Yet automobile analysts are along for the ride with Tesla. After Tesla’s share price zoomed past his target, Morgan Stanley’s Jonas on Tuesday more than doubled his price target to $103 a share from $47. Tesla shares closed Thursday at $92.25, up another 9 percent. (Morgan Stanley is one of the co-managers of the Tesla debt offering.)
Some experts who believe the stock is overblown say that demand for Tesla cars “could materially wane” after a finite number of early adopters are satisfied.
J.P. Morgan’s analysts also said that Tesla “still has its work cut out for it” to meet Musk’s target of a 25 percent gross profit margin. The gross margin in the first quarter stood at 5.7 percent after excluding ZEV credits.
Anderman added that Tesla still doesn’t have a track record that reliably tells consumers (and investors) how long batteries will last, how much it will cost to service them, or how much that will affect resale value. The company has made some guarantees that could prove costly to deliver.
Analysts also point to some positive signs for Tesla. It lowered costs, produced more cars than expected, hasn’t reported major reliability problems and produced battery packs for Toyota and Daimler-Benz. Musk forecasts the sale of 21,000 cars, which would give Tesla nearly 10 percent of the market for passenger cars costing at least as much as Tesla’s base price.
The company’s major shareholders, after Musk, include Fidelity Investments, Morgan Stanley, Abu Dhabi Water & Electric and Daimler.
Then there is the Musk factor. Born in South Africa, he made a fortune in Zip2, a firm that sold software for online content, and PayPal. Since then, he has founded SpaceX for commercial space flights, Tesla Motors, and SolarCity, which designs, finances and installs solar energy systems.
Like many auto industry executives, Musk has a flair for salesmanship and tweets several times a day. He has introduced generous financing plans for his products, opened up about three dozen spiffy dealerships and fiercely attacked a negative piece about the car’s range in the New York Times.
For now, he has prevailed over the naysayers. Tesla has no liquidity problems like those that forced Fisker Automotive, another electric-car company, to halt production. And its product’s reviews have been good. “So is the Tesla Model S the best car ever?” Consumer Reports asked last week. “We wrestled with that question long and hard. It comes close.”
All the enthusiasm has made life difficult for short sellers, who had been betting heavily on Tesla stumbling. (Short sellers borrow and sell shares of a company and make money if the price falls before they have to return the shares.) As recently as February, shares being shorted amounted to about a third of Tesla’s free-trading stock. Now it's down to about 11 percent.
As the share price rises, however, short sellers often scramble to cover themselves before the price rises even further. When they do that, short sellers can drive a stock price even higher in what is known as a short squeeze.
That might account for part of the recent run-up in Tesla’s price. Musk, who has a stake in Tesla worth nearly $2.5 billion, has been taunting the short sellers on Twitter. “Seems to be some stormy weather over in Shortville these days,” Musk wrote on April 25.
Some analysts think the short sellers’ belief that Tesla’s horizons are limited might be proven right — in the long run.
Anderman said that “in two to four years they can be looking at a stagnant or shrinking market, increased service and warrantee costs, and reduced revenue from ZEV credit sales and battery pack sales.” But, he said, “in the short [term, it] looks exciting and what they have done so far is brilliant.”