Tesla's year just went from bad to worse.
The company's stock price has fallen by over 30% since the beginning of this year, as of Tuesday morning when markets opened, after closing on Monday at its lowest point since December 2016. The electric-car maker's stock woes have come as it has dealt with a $700 million first-quarter loss, demand concerns, and skepticism about claims from CEO Elon Musk about its autonomous-driving technology.
"Some of the shine is dulling a bit on Tesla," said Rebecca Lindland, the founder of the website Rebeccadrives.com and a former analyst for Kelley Blue Book.
To restore confidence from investors, Tesla should cut costs and sharpen its focus on the upcoming Model Y SUV, two other analysts told Business Insider.
Tesla did not respond to a request for comment on this story.
Tesla needs to execute the Model Y rollout
Musk has a long history of making unconventional decisions that have been met with doubt. In many cases, Musk has been right, said the Gartner automotive analyst Michael Ramsey, who cited Tesla's approach to vehicle batteries, introduction of over-the-air updates, its decision to build a charging network, and use of large touchscreens to control many in-car settings.
"Tesla is a groundbreaking company that makes very interesting products that people freaking love," Ramsey said.
As Tesla has grown, Musk's tendency to make big bets has not slowed. When he's wrong, the impact can be significant, like in much of 2017 and early 2018, when Tesla experienced "production hell" for its Model 3 sedan due in part to excessive automation at its assembly plant in Fremont, California. A report from Wired indicated that some Tesla executives thought the pace at which Musk wanted to replace human workers with machines at the Fremont factory was too fast, but Musk reportedly did not listen to them.
Read more: Tesla investors are demanding the biggest return in history to hold the company's debt
While Tesla has ironed out its biggest production issues, there are new goals on the horizon that will challenge its ability to execute, including an expanded product line that features a crossover SUV, semi-truck, pickup truck, and sports car.
A smooth rollout of the crossover SUV, called the Model Y, will be particularly important, Ramsey said, even if it requires Tesla to narrow its focus by abandoning the semi-truck, called the Semi, or delaying the pickup truck. Tesla has faced early production and reliability issues for each of the four vehicles it has released. That can't happen with the Model Y, which the company plans to begin producing at the end of next year.
"They literally can't afford for this next vehicle to be kind of a mess," Ramsey said.
Tesla can win back confidence by being profitable
Aside from new vehicles, Musk has also announced an autonomous ride-hailing service and an insurance product for Tesla owners.
According to Musk, Tesla is far ahead of its competitors in developing autonomous-driving technology, which he says will allow the company's vehicles to drive without any human supervision by the end of this year. Next year, Tesla will launch an autonomous ride-hailing service that will be a major profit-driver for the company, Musk has said. None of Tesla's major competitors have set a similarly aggressive timeline for the introduction of self-driving consumer vehicles, and experts in autonomous-driving technology have cast doubt on Musk's predictions.
During Tesla's first-quarter earnings call in April, Musk said Tesla would launch a new insurance product for customers in around a month. The company has yet to detail how it will work, or how it will differ from an insurance product it introduced through Liberty Mutual Insurance in 2017.
A new insurance offering would probably not produce significant profits for Tesla, and the company is unlikely to hit Musk's robotaxi timeline, said Maryann Keller, the principal at the automotive consulting firm Maryann Keller & Associates.
"People are getting tired of inflated projections that have very little probability of being met," she said.
Teasing new lines of business isn't likely to inspire the same excitement it has in the past, Keller said, and Musk's erratic behavior during 2018 — which included a tweet that led to a lawsuit from the Securities and Exchange Commission and a video interview in which he smoked marijuana — has diminished some of the goodwill Tesla has built through its vehicles.
If Musk wants to reverse the damage his behavior has caused, he'll have to show that Tesla can become profitable by cutting costs, a priority Musk mentioned in a recent email to employees.
"If he's able to show that there is a cost discipline in the company after the next quarterly financial report, that might buy him some time and bring some credibility to the business," Keller said.
Tesla has made cost-cutting efforts over the past year through layoffs, increased production efficiency, and lower spending on capital. Those efforts yielded dividends during the second half of last year, when the company posted its first consecutive quarterly profits. But they weren't enough to prevent a $700 million loss during the first-quarter of this year.
In January, Musk said he was optimistic that Tesla would be profitable for the foreseeable future. A month later, he said Tesla would likely post a loss during the first quarter before returning to profitability during the second quarter. In its first-quarter earnings letter, released in April, Tesla said it expected to become profitable again during the third quarter.
"Some of the patience for sustainable profitability, I think, is starting to wear," Lindland said.
Have you worked for Tesla? Do you have a story to share? Contact this reporter at mmatousek@bjinnox.com.
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- Tesla closes at a 2 1/2-year low after analyst who cut his price target for the 4th time this year warns it's facing a 'code red situation'
