Why the Market Is Losing Confidence in Tesla Inc Stock

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Suddenly, there are some cracks in the armor at Tesla Inc (NASDAQ:TSLA). The TSLA stock price has dipped about 2o% from mid-September highs.

Why the Market Is Losing Confidence in TSLA Stock

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Even with investors stepping in so far this month, I don’t think the decline has ended. As I’ve written many times before, the TSLA stock price is the barometer of an argument of what Tesla earnings will be next decade and beyond. Modeling those earnings comes down to confidence in Tesla’s products, quality and execution.

And it’s starting to look like that execution seriously is being called into question. I asked in August if TSLA stock could survive any more broken promises. With Model 3 production the latest in a series of disappointments, that question seems more urgent than ever.

Model 3 Problems

The response from most TSLA bulls to the disappointing levels of Model 3 production is to advise patience. On this site in October, Luke Lango pointed out that production of the Model S and Model X started at similar levels. In both cases, early issues were fixed, and production schedules improved substantially and quickly.

It’s a fair point, and it’s not as if Model 3 production is going to stay stuck at the three-per-day level cited for the beginning of the quarter. But the problem isn’t so much the nature of the ramp as the promises made. CEO Elon Musk guided for production of 1,500 Model 3 vehicles in Q3 as recently as August into the quarter. The figure instead was less than 300.

And it’s just another in the series of broken promises from Tesla. “It’s just one quarter,” TSLA bulls say in response to the Q3 production miss. But it’s not. Second-half 2017 production was supposed to be 100-200 thousand, according to Musk in May 2016, as the Wall Street Journalpointed out last month. The company will wind up nowhere close.

Musk said last October that there was no need for a capital raise for the Model 3. Tesla then issued stock in March, diluted shareholders and raised debt in August, though it framed that raise as simply providing a cash cushion.

The point here is that while the bottleneck itself is a short-term problem — and a fixable one — it’s part of a broader pattern. Musk continues to overpromise and under deliver. At some point, that erodes the confidence investors hold in the company. Indeed, the debt issued in August already is selling below par, showing that risk-averse bondholders see the recent events as potentially meaningful.

Confidence in TSLA Stock

The problems aren’t limited to the Model 3. The Buffalo facility is behind schedule. SolarCity was barely mentioned on the Q3 conference call, and the promised solar roof tiles haven’t materialized. Increasingly, at least from my vantage point, the confidence in both Musk and Tesla is starting to fade.

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