Analysts: Tesla’s Cheaper Model 3 Is the ‘Un-iPhone Moment’

Analysts had harsh words for Tesla this week after Elon Musk’s company announced that it would not post a profit in the first quarter, and revealed a new $35,000 Model 3 vehicle.

CNBC reports that financial analysts were not impressed following a conference call held by Tesla with particular members of the media last night. During the call, CEO Elon Musk revealed that the company would not be profitable in its first quarter and noted that all global sales were transitioning to an online-only ordering system. The cut in retail stores is designed to increase demand for Tesla vehicles – which many believe has been waning – and to cut overhead costs.

Morgan Stanley analyst Adam Jonas was skeptical of the newly prices Model 3 vehicle stating:”Tesla significantly increased its efforts to promote the sale of cheaper cars… While this may stabilize the air-pocket in Q1 sales, we’re concerned it’s a sign of a brand that may be, at the margin, losing its halo of exclusivity. We think the bears have more material to work with than bulls here…”

Barclays analyst Brian Johnson was particularly scathing in his rating of the company stating: “Another few ‘blue pill’ bull case points undermined… As we have long argued, the bull case for Tesla often revolves around it being the next Apple, with the Model 3 as the iPhone…But today’s announcement of a lower priced $35k Model and closing all stores/galleries undercuts a few of those pillars…”

Goldman Sachs gave the company’s stock a sell rating, stating:

Ultimately, we think this announcement may have been anticlimactic for investors, with the timeline for the launch only accelerated a couple months and as we believe investors were looking for details on new products (Model Y or Pickup truck) and a potential update on Model 3 demand (remaining reservations, weekly order rates, initial international demand levels)… While we believe the introduction of the $35k Model 3 may be positive for overall program demand — which we and investors have been questioning given the phase out of the EV tax credit in the US and price elasticity of demand for the higher priced vehicle variants — we also think this will drive a downward mix impact for Model 3 margins…

Bank of America was not positive about the future of the stock either stating:

We would note that TSLA previously indicated that it expected to deliver midrange/ price Model 3s across major markets likely around May of this year, progressing towards lower-range/price models around mid-year… In our view, the result of what appears to be an earlier push of lower range/price Model 3s will likely be an increase in volume in the near term, rather than an increase in profits, as the cost structure for mass market electric vehicles (specifically those priced around $35k) is not yet breakeven, as outlined in our Who Makes the Car analysis… And while TSLA noted that these new models will be lower in cost, it appears this may be more a function of reduced battery size and range, rather than any other major cost efficiencies…

J.P. Morgan was not impressed with Tesla’s plans to close all of its retail stores globally, stating:

The centerpiece of the announcement revolved around the long-awaited debut of the shorter range base version of the Model 3 sedan starting at the long-promised price of $35,000 — a seemingly positive development… However, in a posting to the company’s blog and in an email to employees made publicly available, Tesla CEO Elon Musk explained that in order for the company to be able to both offer the car at this low a price and to remain financially sustainable, it has become necessary to close most of the company’s well over one hundred stores, which we estimate could result in another round of potentially thousands of lay-offs (it dismissed 7% of its full-time staff just last month), along with restructuring charges and severance pay… We do not think this was the original plan envisaged by Tesla management and bullish investors, but rather is instead suggestive of what we have long feared — that the Model 3 would prove more difficult and more expensive to manufacture than was originally projected, such that the firm would struggle to earn its targeted above industry average 25% gross margin as it transitions toward industry average pricing…