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Winter is coming for Tesla, this investor says

Tesla

Electric car maker Tesla (Tesla Stock Quote, Chart, News NASDAQ:TSLA) has a bigger problem than supposedly shatterproof glass on the cybertruck, says Brooke Thackray, research analyst for Horizons ETFs.

It’s the charge from practically every established auto maker into the electric vehicle space that will be its downfall.

“This is a stock that you either love it or you hate it,” says Thackray, speaking to BNN Bloomberg last Friday. “I’m not for Tesla. The cybertruck, I thought that they had a good concept there, with it being able to be charged in parking lots. That makes a little bit of sense. The problem with Tesla is that there’s increasing competition from all the major companies.”

“They’re not dabbling in this, they’re pushing all of their chips in on this. This isn’t like GM years ago with its one electric car,” he says.

Tesla’s share price has been on a superb run since bottoming out in June. At $338 per share, the stock has come a long way from the sub-$180 range it was in just five months ago when concerns about profitability and productivity at the company joined up with continuing headlines of the negative sort surrounding Tesla’s mercurial leader Elon Musk to make for a poor performance over the first half of 2019, over which TSLA lost almost half of its value. (All figures in US dollars.)

But things have looked better more recently, with Tesla surprising on its latest earnings report delivered in October. The company boasted about its new newly-opened Gigafactory in Shanghai which will be making Model 3’s much more cheaply than at Tesla’s US factories.

For the company’s third quarter, Tesla posted a profit with adjusted EPS of $1.86 per share in comparison to the consensus expectation of a $0.42 loss. Revenue came in at $6.3 billion, in line with analysts’ estimates.

“Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened. Additionally, operating expenses are at the lowest level since Model 3 production started. As a result, we returned to GAAP profitability in Q3 while generating positive free cash flow,” wrote management in the quarterly press release.

Looking at the stock chart, Thackray says that it’s really tough to say which way TSLA is headed.

“[The stock] may reach an all-time high here. It’s totally possible. But this is an extremely difficult stock, very volatile. And Elon Musk is very volatile as well,” Thackray says.

“There are a lot of touch points around $230. I’m not saying that it’s going there but it’s really,” he says. “Right now, from a seasonal perspective, the auto sector could do well. But we’re at 17 million cars — peak auto. So, Tesla has a lot of headwinds that it’s going to have to fight against.

Morgan Stanley seemed to echo that uncertainty last week with a new report saying that while the bull case for Tesla has it going to $500 per share, the firm’s base case price target remains at $250.

“To be clear, we are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more and more like a traditional auto OEM [original equipment manufacturer]; we are prepared for a potential surge in sentiment through 1H20 but question the sustainability,” said Morgan Stanley analyst Adam Jones.

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