Tesla Layoffs Stoke Wall Street's Long-Running Bull-Bear Clash
(Bloomberg) -- The perpetual tug-of-war between Tesla Inc.’s true believers and skeptics took a new turn Friday after the electric-car maker sparked a sell-off with its plan to cut thousands of jobs.
Tesla shares dropped as much as 10 percent and were on track toward their biggest one-day decline in almost four months. The news, disclosed in a blog post by founder and Chief Executive Officer Elon Musk, exacerbated concerns that the strong performance the company delivered in the third quarter may not be repeated any time soon.
However, some bullish analysts said the job cuts were part of “business as usual,” and a sign that Tesla is trying to rein in its spending.
The relentless bull-bear debate on Tesla has recently been focused on how the company would tackle the gradual phase out of a federal incentive on electric cars that had helped to boost the demand for the company’s cars.
Here’s a round up of the analyst commentary.
“Today’s Tesla update supports the bear case argument that Tesla’s third-quarter results weren’t sustainable and that the U.S. tax credit phase-out is indeed a material headwind for Model 3 demand, at current price-points (starting at $44,000).”
“The headcount reductions should generate some savings but could also raise questions about Tesla’s ability to efficiently scale globally this year while supporting a larger installed-base.”
Morgan Stanley, Adam Jonas
“While it’s appropriate to see Tesla expectations being managed downward (and consensus should fall), we see Elon Musk’s letter as giving Tesla bears a platform to dominate sentiment until the company reports fourth-quarter results expected in February.”
“Guide may be lower than buy-side consensus, who may have been preparing for an acceleration in profit. Recent discussions with Tesla suggested the pace of cost reduction could have matched or even exceeded mix decline.”
“We continue to see the stock locked into a wide trading range either side of our $291 price target.”
Rates equal-weight, price target $291.
Consumer Edge, Derek Glynn
“Following a better-than-expected third-quarter financial result in which Tesla generated meaningful profits and free cash flow, we are encouraged that management is focused on achieving profitability each quarter after years of operating at significant losses.”
“Today’s announcement signals Tesla’s transition from an original equipment maker scaling production with largely manufacturing-related ‘pain points’ to one that needs to balance that rising production and negative mix impact with sustainable profitability.”
Rates equalweight, price target $350.
Jefferies, Philippe Houchois
“The announced headcount reduction and guidance of lower sequential profits in fourth and first quarters are consistent with our earnings expectations as Model S/X declines slightly and Tesla progresses towards higher volume lower price Model 3s.”
“While electric vehicle (EV) competition is accelerating, we believe Tesla continues to lead the industry as it moves Model 3 price point towards $35,000 while most competitors remain engaged in an EV negative margin sum game at higher price points.”
Rates buy, price target $450.
Baird, Ben Kallo
“Shares are down as investors worry about Tesla’s growth trajectory, but we think the workforce cut is not unreasonable, as the company ramped hiring during the Model 3 production ramp and has now likely completed the labor-intensive portion.”
“While headlines may recycle the somewhat foreboding language in Musk’s email, we believe the tone of the letter may have been overly negative to set the stage for the workforce reduction announcement, rather than reassure investors.”
“We continue to believe there is significant opportunity for Tesla earnings to exceed consensus estimates if the company is able to effectively manage OpEx growth.”
Rates outperform, price target $465.
New Street, Pierre Ferragu
“Laying off employees after the hiring spree of recent years to make the company more competitive is sensible and a very usual move for Elon Musk. He did the same at Space X in recent weeks, did it at Tesla last spring.”
“We know Tesla is facing a cliff with the end of subsidies in the U.S., and reacted to it with a price cut of $2,000 per car. The announced layoffs will cover over the corresponding impact on margins.”
“On a non-GAAP basis, we expect Tesla to gradually ramp operating margins through 2019 as the company ramps production and increases operating leverage. We believe that in a decent macro environment and with good execution, Tesla is in a position to exit 2019 with a 10 percent non-GAAP operating margin.”
Rates buy, price target $530.
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