Tesla Inc. shares slid 7% Tuesday to bring their two-day loss to more than 9%, as analysts weighed in on lower-than-expected second-quarter deliveries and questioned whether the achievement of a key production goal is sustainable.
Adding to the downdraft was a Business Insider report that said internal documents showed Tesla Chief Executive Elon Musk ordered his employees to stop putting nearly finished Model 3s through a critical safety test before leaving the factory floor. A Tesla spokesperson told the website that every car goes through “rigorous quality checks.”
The electric car maker reported on Monday that it delivered 40,740 vehicles in the second quarter, “another significant miss vs. consensus of 48,874 and JPM’s 56,600 (Tesla deliveries also fell short in 1Q18, 4Q17, and 3Q17 — ever since the Model 3 entered production),” JP Morgan analyst Ryan Brinkman wrote in a note.
Brinkman said the company’s success in finally meeting its goal of producing 5,000 of its Model 3 mass-market sedans a week, was likely aided by the past practice of unsustainable “burst production,” where it pulls out all the stops to meet a goal that cannot initially be repeated.
In-transit vehicles are not being counted as sales for the period, suggesting less fixed overhead absorption, he said, which could mean higher costs given the way that Tesla TSLA, -7.23% met the goal. The company built a production line in a tent beside its main factory, a construction that is expected to be temporary.
JP Morgan lowered its revenue and earnings forecasts after the report and said it’s sticking with its underperform rating on the stock, the equivalent of sell.
Bernstein analyst Toni Sacconaghi was also downbeat on the report, and said the key issue for the Model 3 is not production but profitability. Tesla said it still expects to be profitable and cash flow positive in the third and fourth quarters, but “we believe that even if Tesla does hit these targets, it will likely be due to one-time austerity (working capital, opex) and/or product mix (4WD and performance version) factors … and will not resolve the fundamental controversy of long-term Model 3 profitability.”