Tesla Plunges in Last 2 Trading Sessions on Multiple Factors
Tesla Motors, Inc.’s (TSLA) stock plunged over the last two trading sessions as the weak overall market conditions combined with company-specific factors such as a downward estimate revision by Credit Suisse, a petition by Model S owners and unfulfilled investor expectations related to last week’s announcement. As a result, the electric carmaker’s stock plunged 7.8% to $236.91 on Friday and 5.2% to $224.59 on Monday.
Apart from the impact of the decline in the market, the biggest factor for the downturn was high investor expectations related to the announcement made last week. Tesla had announced the world’s first dual electric motor production car as well as an all-wheel drive and an autopilot system that will be integrated in all Model S vehicles, going forward.
The dual motor significantly enhances the performance of Model S. In fact, the high-end version of Model S with dual motor, christened Model S P85, is the fastest accelerating four-door production car of all time with a 0–60 mph acceleration in 3.2 seconds, according to Tesla. Moreover, it does not sacrifice efficiency to achieve the acceleration.
While the news is surely a positive for Tesla, the hype surrounding the event was so huge that the announcement failed to meet investors’ expectations. Moreover, the current owners of Model S, specially those who bought the car recently, are feeling left out and are filing a petition seeking retrofitting of the all-wheel drive and autopilot system.
While these factors were enough to bring the stock down on Friday, further downward pressure was created on Monday as Credit Suisse analysts cut the 2014 earnings per share estimate for Tesla to 86 cents from 96 cents due to the expected increase in warranty costs in the third quarter. The company had announced an increase in warranty on the Model S drive unit to eight years and infinite miles in August.
Tesla had acknowledged that the move will have an adverse effect on its earnings in the short term due to the increase in warranty reserves. However, it believes that the move will have long-term beneficial effects.
Currently, Tesla sports a Zacks Rank #2 (Buy). Other auto stocks worth considering include Toyota Motor Corp. (TM), Tata Motors Ltd (TTM) and Advance Auto Parts Inc. (AAP). Toyota and Tata Motors have a Zacks Rank #1 (Strong Buy), while Advance Auto Parts sports a Zacks Rank #2.
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