Electric vehicle automaker Tesla Inc. is in trouble. A hedge fund manager is predicting a dire future for the Elon Musk-owned company.
The stock market bubble surrounding Tesla is about to burst, he said, and the company could go bust because of its current business model. Let’s see how true this statement is.
Bear Predictions
A stock market bear (an investor believing certain stock prices will go down and attempting to profit from it) named Per Lekander is sounding out his dire predictions of Tesla’s future to CNBC.
Lekander, managing partner of Clean Energy Transition investment management firm, spoke on CNBC’s program Squawk Box Europe. He said, “This was really the beginning of the end of the Tesla bubble, which probably, arguably was the biggest stock market bubble in modern history. I actually think the company could go bust.”
Numbers Down
The hedge fund manager’s comments were perhaps the result of Tesla reporting the delivery of ‘only’ 386,810 vehicles in Q1 2024. This was 8.5% lower than last year’s levels.
The numbers were also down from the tally reached over the last quarter of 2023 (484,507) and also Wall Street’s forecast of 455,000 deliveries.
Stock Prices Drop
He also predicted the stock could fall to just $14 per share — a 91% decline from the current price. After a short dip, Tesla’s shares lifted a bit on April 3 to $168. But the average price target is $196.
The stock already dropped 34% this year, thanks to low EV demand and Musk’s bullying attitude towards his company’s investors. Added with the low car delivery numbers, this spells trouble for Tesla, which used to be everyone’s favorite stock in the market.
Business Model at Fault
And the fault lies, according to Lekander, within Tesla’s business model. He analyzed the model to be dependent on strong revenue growth, vertical integration to gain profit margin from car sales, and directly selling to consumers.
It’s a brilliant model when there’s growth “because you actually get paid for growing and you capture all the margin.” But the problem is, according to Lekander, when sales go down, the reverse also happens. Tesla is now faced with paying its fixed cost and negative working capital — a situation where liabilities exceed a company’s income and assets.
Old Models Going Stale
Factory shutdown and an arson attack were some of the things Tesla blamed in the first quarter report for vehicle production. But Lekander didn’t think this was a problem. Instead, he saw it as a “demand problem.”
Tesla only sold 2 types of car: Model 3 and Model Y. The company is not predicted to introduce anything new to the line-up until at least 2025 (“but more likely it’s 2026,” negated Lekander on the show). Meanwhile, competition is ramping up from all other eclectic vehicle manufacturers. Volkswagen alone is preparing to launch 13 new cars, most of the electric.
Another Expert Agrees
Some other stock market watchers agree with Lekander. Both Tesla bears and bulls are anticipating trouble for Tesla. A longtime Tesla bull (an investor expecting prices to rise), Dan Ives from Wedbush Securities, wrote in his report that Tesla’s Q1 performance was “an unmitigated disaster.”
“I believe this is a fork in the road,” said Ives to CNBC. “Musk either turns us around, whether it’s cutting prices, [putting] the strategy in place, or maybe we sit here 3-4 quarters from now… and this is actually a seminal moment and the start of what could be some darker days ahead, if they do not turn this around.”
More Negative Outlook
Richard Windsor of Radio Free Mobile also sent his research note on Tesla and his outlook is also bleak. He questioned the company’s $500 billion valuation, calling it “ludicrous”, for this time of strong competition.
“While the long-term proposition of electrical vehicles remains unchanged, the realities of delivering on that proposition are really starting to tell as Tesla (and the others) have run out of well-heeled consumers willing to pay big money to be beta testers.”
Looking Further Ahead
On the other hand, Q1’s more negative report doesn’t mean things can’t look up for the future. Tom Narayan of RBC Capital Markets said that Tesla’s development of FSD (Full-Safe Driving) technology could turn things around for the automaker.
“Maybe that gets people in the showrooms, maybe it gets people to subscribe to it, maybe it gets people to buy cars. So there is that near-term catalyst,” Narayan said.
EV Is STILL the Future
Gene Munster of Deepwater Management agreed that Tesla’s numbers are “probably more ugly” than it seems and expected things would become even tougher for Tesla. However, he also believed the nature of the electric vehicles would eventually turn things around for Tesla.
“While EV’s are in the dumpster, the pendulum will swing back in favor of the theme and Tesla because electrification and autonomy are the future and Tesla is the leader,” he posted on X.
Strong Bullish Attitudes
ARK Invest, owned by investor Cathie Wood, still kept its support for Tesla by buying millions of dollars worth of Tesla stock. This bullish attitude is still common in Wall Street, where Tesla has always been one of the most divisive stocks.
If things go the way ARK Invest wants or as Narayan predicted, then the losers would be the Tesla bears like Lekander, who’s always been critical of Tesla for years. Lekander certainly missed out on huge gains that Tesla has had since 2020.
Keep Expectations Low
Still, Tesla bulls are cautioned to keep expectations low when dealing with the company’s stock. Investors.com is even advising “Tesla stock has had mammoth runs and could again. But it’s not a buy right stock now.”
With Lekander not seeing “any reason whatsoever to see any recovery over the next two years given that these models are stale and given the economy is not rocketing,” it’s safe to say that the market is not in Tesla’s favor right now and might not be for a while.
