Shares of Tesla TSLA fell by more than 1% through mid-afternoon trading on Monday, before surging back into the green toward the end of the day. Still, the stock has witnessed a much larger decline over the last month that might underscore a troubling trend.
With that said, let’s take a look to see what might have investors so worried and if their concerns are justified.
Musk’s Compensation Package
Tesla approved CEO Elon Musk’s massive, relatively unprecedented compensation package last week. Shares of Tesla surged in the lead-up to the vote but sunk after reports surfaced that the compensation package passed .
The basic idea from Tesla’s pro-compensation plan camp is that it will provide Musk further incentive to transform Tesla into a profitable company that is actually able to mass-produce electric vehicles, batteries, and more.
Musk and Tesla must hit 12 market capitalization milestones and 16 revenue or adjusted earnings targets in order to vest his new stock option plan. Tesla’s market cap has to climb to $100 billion for the first tranche to vest, with a series of $50 billion jumps to follow.
The outspoken chief executive’s new payment structure could see him earn as much as $55 billion if Tesla hits these lofty market cap targets. But the company has a long way to go in order to reach the first step on the ladder, as Tesla’s market cap currently hovers at around $50 billion.
Investors clearly have other concerns about Tesla’s core business that go far beyond the CEO’s new payment structure. These concerns have been demonstrated by its recent downturn, which saw Tesla’s stock price plummet nearly 13% over the last four weeks.
Some investors might see this as a positive and think they can now buy Tesla on the cheap, which might very well be true. However, just because Tesla’s stock is technically less expensive than it has been due to its recent decline, doesn’t mean there is any reason to buy the stock now.
One potential worry is that analysts have become less positive about Tesla recently. Within the last 60 days, the company has earned three earnings estimate revisions for both the first and second quarter, with 100% agreement to the downside. Full-year revisions have been more mixed, but still favor the downside seven to three.
Moving on to our current Zacks Consensus Estimates, Tesla is projected to see its revenues surge in 2018. Tesla’s Q1 sales are expected to climb by 25.9%, while its Q2 revenues are projected to pop by nearly 41%. Tesla’s revenues are also expected to hit $18.66 billion in 2018, which would mark a 58.7% climb over 2017.
However, Tesla is expected to post wider year-over-year adjusted losses in both the first and second quarter, as well as a full-year loss of $6.95 per share.
Tesla reaffirmed its plans to produce 5,000 Model 3s per week by the end of the second quarter of 2018 on its fourth quarter earnings call. But investors have seen this movie before.
Musk has consistently over promised and under delivered when it comes to Tesla’s production goals up to this point. Tesla sold a total of just 102,807 cars last year, with the more expensive Model S sedan and Model X SUV making up a large portion of sales.
Meanwhile, the company faced continued setbacks on its more affordable Model 3, which is supposed to help transform Tesla into a viable automaker that aims to compete against the likes of Ford F , General Motors GM , and Volkswagen VLKAY in the electric vehicle market.
Tesla will have to make good on its promise to mass produce electric vehicles, while also bolstering the firm’s renewable energy and solar panel business in order for Musk to cash in on his new stock options.
The company might be able to work through its current production problems and eventually be ready to take on industry giants. But it seems that investors finally want to see Tesla prove it can make money, which means the stock could be headed for a sustained downturn.
Tesla is also currently a Zacks Rank #4 (Sell) and sports an “F” grade for Value and a “C” for Growth in our Style Scores system.
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