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Tesla’s Stocks Drop After Wall Street Deems Musk’s “Sci-Fi” Projects a Distraction

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Wall Street is losing its affection for Elon Musk.

Musk’s company, Tesla, saw its stock drop to its level point in nearly 30 months. Part of the reason was an analyst’s conclusion that the entrepreneur’s “sci-fi projects” were proving to be a distraction, and had placed the firm in what he termed a “code red situation.”

Dan Ives of Wedbush Securities’ slashed his price target for Tesla shares from $275 all the way down to $230. He also advised some cost cutting, citing drooping demand in the United States. Noted Ives, “With a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser focused on shoring up core demand for Model 3.”

In a memo sent to his employees last week, Musk charged that cost cutting will be the order of the day for at least the foreseeable future. “Going forward, all expenses of any kind anywhere in the world, including parts, salary, travel expenses, rent, literally every payment that leaves our bank account must (be) reviewed.”

“With a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser focused on shoring up core demand for Model 3 and simplifying its business model and expense structure in our opinion with headwinds abound,” Ives wrote in a letter to investors.

The so-called “Sci-fi” projects to which Ives alluded include the rocket company SpaceX and the Boring Co., which digs tunnels for below-ground transit systems.

“Tesla is facing a quagmire as the company is in the midst of building out its next flagship factory in Shanghai with Giga 3, in the early stages of tooling/blueprinting its next Model Y for production slated for 2020, and ramping production of its mid-range and base Model 3 in the US, all while facing a growing cash crunch and high expense structure issue,” Ives also wrote.

Tesla’s shares have fallen about 38% this year, the Wall Street Journal reported. “T. Rowe Price Associates Inc.—for years one of Tesla’s biggest investors—sold roughly 81% of its holdings over the first three months of 2019, leaving the firm owning the smallest amount of Tesla stock since 2013. In April, Tesla reported one of the worst quarterly losses in its history as revenue declined 37% from the prior quarter to $4.54 billion. Vehicle deliveries in the period fell 31% from the fourth quarter.”

 

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