Electric-car maker Tesla Motors'(TSLA -0.10%) stock has been hit hard recently, declining about 5% on Wednesday, and a total of about 14% during the last week. An overall pullback in growth stocks, combined with a few downgrades from analysts, have investors skittish. Here's what there is to know about the falling share price.
The first negative analyst remarks about Tesla came earlier in the week when Morgan Stanley analyst Adam Jonas lowered his price target for the stock from $450 to $333. "We are lowering our price target by 26% to reflect our lowered volume expectations for Model X and Model 3, a lower valuation for Tesla Energy, and accelerating competition in the mobility business," Jonas said in a note on Monday. It's worth noting that his revised target is still a whopping 93% higher than the stock's $172 price at the time of this writing.
Following Morgan Stanley's downgrade of Tesla stock, Pacific Crest analysts said that Model X orders are "lagging expectations," and that Model S hasn't seen any notable increase in sales, citing "checks with U.S. sales centers."
What should investors do?
Neither report offered any new information on Tesla, so there's no reason for investors to adjust any long-term thesis for the business. Morgan Stanley's downgrade, based on Jonas' lower expectations for vehicle sales volume, doesn't cite any publicly available information. Further, these sort of risks should already be something investors and analysts are considering; there has always been risk to Tesla's timeline for production and deliveries.
Pacific Crest's bearish note was particularly useless to investors. Following the company's 50% sequential hike in deliveries between Q3 and Q4, any sequential increase in the sedan's sales during the next few quarters should have been expected to be modest.
Further, Tesla is making little effort -- if any -- to boost demand for its Model X SUV, as it already has around 25,000 deposit-backed preorders for the new vehicle. Indeed, the new SUV isn't even marketed in the company's stores. And it's worth pointing out that the stores that aren't marketing Model X are probably the same "U.S. sales centers" Pacific Crest analysts cited as their sources.
Just because these analyst updates may not be enough for investors to change their theses for Tesla stock, it doesn't mean the stock is automatically a buy. Given Tesla's very forward-looking valuation, there's significant risk to the stock if the company fails to execute on its ambitious growth plans, or if demand growth for the company's vehicle turns out to be worse than expected.
The only thing investors can really do at this point is wait for an update from the company next Wednesday, February 10, when Tesla reports fourth-quarter results. The report will likely highlight management expectations for production and deliveries for the current quarter and the rest of the year -- an update that would shed light on the validity of these analyst reports.