Shares of electric vehicle market pioneer Tesla Inc. (TSLA) continue their downward spiral this week as the company gears up to post its quarterly earnings report, dubbed as a "make or break" period for the struggling auto maker, as it attempts to ramp up production of its first mass market vehicle, the Model 3 sedan. Despite recent woes, driving shares down 35% from all-time highs reached in September 2017, the bulls have stuck by Musk's side, suggesting that the firm will likely raise the cash it needs to survive and will ultimately fix its production issues, as argued in a Barron's story published March 31. (For more, see also: Tesla's Stock Enters Crossroads as Financial Crunch Looms.)
Tesla's 'On the Verge of Bankruptcy,' Say Bears
On Tuesday, the Palo Alto, Calif.-based company is expected to provide a much anticipated update on how many Model 3s it delivered to customers in the first quarter. Musk has delayed production targets for the company's more affordable vehicle at least twice, as the company burns through billions in cash to hedge against new competition from both traditional automakers such as General Motors Inc. (GM) and Ford Motor Co. (F), as well as niche EV startups.
The company has been slapped with a series of negative headlines in the recent weeks, including a downgrade by Moody's Investors Services due to production setbacks, a recall of 123,000 Model S cars, and a fatal crash involving one of its Model X SUVs, in which the "auto-pilot" function was active. The wave of negative media has led many to turn sour on Tesla stock, including John Thompson of Vilas Capital, who told Fortune in an interview that the company is "without any doubt" on "the verge of bankruptcy." (For more, see also: Tesla 'On The Verge' of Bankruptcy: Vilas Capital.)
TSLA to Rise to the Challenge
Tesla and its founder Elon Musk aren't strangers to the haters, as the serial entrepreneur and tech visionary has succeeded in reaching milestones against all odds. "It isn't an easy bet, but we think Tesla will make progress in addressing the challenges. As it does, the shares will rally, possibly later this year," wrote Barron's, applauding Musk's achievement to build a new company in a 100-year-old industry, while simultaneously reinventing the energy sector by championing renewables.
Those who have stuck by TSLA over the past five years have raked in gains of 469%, taking into account the recent weakness. Barron's sees Tesla raising "just enough new money to continue its journey," allowing it to "limp through production of the Model 3 until output satisfies investors, and most of its current travails will recede in the rearview mirror."
Closing down 5.3% on Monday at $252.48 on Monday, TSLA reflects a 18.9% decline year-to-date (YTD) and a 9.3% loss over the most recent 12 months, compared to the S&P 500's 3.4% decline and 9.3% rally over the same respective periods.
Analysts at Instinet echo the bullish sentiment. "My gut feeling is they are going to make tremendous strides on Model 3 production in the June quarter," said Instinet's Romit Shah, who maintains a buy rating on TSLA stock. He sees Tesla nearing the 5,000 vehicle per week mark, ramping up to 4,000 by the end of June. Shah noted that if the Silicon Valley company does raise capital, it will most likely be in the fourth quarter. Around $3 billion raised would be 6% to 7% dilutive to current shareholders, he wrote, based on a share price around $266. (For more, see also: Tesla Recalls 123,000 Model S Cars.)