In a recent article, the Chicago Tribune states that Wall Street analysts are “waking up from the dream” of Elon Musk’s Tesla following mass layoffs and lowered production of certain models.
Recently, concerns about the demand for Tesla vehicles have been reignited following the company’s announcement that it will be lowering the production hours spent on Model S and Model X vehicles. According to both current and former Tesla employees, the electric car maker has set significantly lower production targets for the Model S and X vehicles; this was later confirmed by Tesla.
It was also announced last week that Tesla would be cutting seven percent of its workforce; in an email to employees, CEO Elon Musk stated:
Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels. While we have made great progress, our products are still too expensive for most people.
Now, the Chicago Tribune writes that Wall Street analysts are “waking up from the dream” of Tesla. The article in the Tribune states:
Elon Musk‘s electric-auto giant Tesla said Wednesday it has curbed production for some of its most expensive vehicles after its second mass layoff in seven months, fueling concern over the company’s ability to survive without making as many of the top-dollar cars that helped it become a household name.
The Tribune notes that Tesla has faced production and delivery issues for some time now:
But Tesla has struggled for months to handle production, cost and delivery issues surrounding the Model 3, and Musk has said the company can’t sell the car at its long-promised price of $35,000 while remaining profitable. Wall Street analysts have said the company has not yet proven it can lose out on those premium sales and still function in a competitive market.
“While the strategy … to bring cost down for the low end had good intentions, we believe Tesla underestimated the cost curves and manufacturing side of the equation,” RBC Capital Markets analyst Joseph Spak wrote in a note to clients this week titled, “Waking up from the dream.” Thirty-four months after Tesla promised a $35,000 Model 3, “the car still does not exist.”
But Wall Street analysts are reportedly not convinced according to the Tribune:
The company said in a statement Wednesday the drawdown was due to efficiency improvements on its factory line and “would give us the flexibility to increase our production capacity in the future as needed.”
Tesla earned a record quarterly profit last year, but Musk warned this month that its most recent quarter would “with great difficulty, effort and some luck” likely only show “a tiny profit.” The company will offer more detail when it reveals its newest quarterly financial report next week, a spokesman said.
“Everything we’re seeing with Tesla’s behavior in the last month suggests they don’t want to build their future on high-end cars,” said Gene Munster, managing partner at the investment firm Loup Ventures. “The real opportunity is to hit the sweet spot of the curve, at $35,000, and they’re a long way away from that today.”
Read the full article in the Chicago Tribune here.