Tesla's stock selloff messes up Elon Musk's big week

Emergence of competing electric vehicles, lingering concern, sent Tesla's stock 13% down this week

This was supposed to be Elon Musk’s big week, capped by Tesla’s first Model 3 sedan rolling off the assembly line. Instead, shares that had been riding high in anticipation of his most consequential car yet are poised for their worst week in almost a year and a half.
 

A troublesome quarterly sales report, the emergence of competing electric vehicles from the likes of Volvo Car Group and lingering concern about Tesla’s ability to mass produce have sent its stock down 13 per cent this week. Modest gains in Friday trading still have left the shares on course for their steepest weekly drop since February 2016, and Tesla’s market value has dropped back below General Motors.

This week’s worries put a damper on the arrival of the linchpin to Musk’s growth ambitions. For Tesla, bringing out Model 3 and becoming more of a mass-market carmaker will require overcoming the routine manufacturing issues that have handicapped output of batteries or Model X sport utility vehicles. And so-called legacy automakers have sent a clear signal they won’t go down without a fight — Volvo underscored this by announcing all of its new models will have hybrid or fully electric powertrains from 2019.

“Tesla still faces a lot of challenges,” said Michelle Krebs, a senior analyst at Autotrader. The company “needs to focus on quality over speed as they ramp up the Model 3. The Volvo announcement drove home the fact that Tesla is going to face more competition.”

The first blow to Tesla stock came just after regular trading stopped ahead of the July 4 holiday. The Palo Alto, California-based posted a quarter-by-quarter drop for both the Model S sedan and Model X SUV for the three months ending in June. Musk needs revenue from both to keep funding the costly introduction of the Model 3 and get production to levels that could put Tesla on course for profits that have mostly eluded the company.

Delivery issues

Tesla issued an update to its deliveries figures on Friday to add that about 3,500 vehicles were in transit to customers at the end of the second quarter, detail that was missing from its initial statement Monday. The company said those cars will count toward its third-quarter tally.
 

Within its sales report, Tesla cited issues with making 100 kWh batteries, a disclosure analysts have said should have been made earlier. The surprise snag reinforced doubts about whether Musk can smoothly ramp up to building hundreds of thousands of cars annually, from the roughly 84,000 built last year.

Musk himself seems to have dialled back his expectations. The chief executive officer tweeted this week that Tesla was planning to hand over the keys to the first 30 owners of the Model 3 on July 28, produce 100 of the cars in August, more than 1,500 in September and 20,000 in December.

‘Hell-bent’

That’s well below the 100,000 to 200,000 Model 3s that Musk said in May 2016 was Tesla’s goal for the second half of this year. On the same earnings call last year that the CEO gave that forecast, Musk said Tesla was “going to be hell-bent on becoming the best manufacturer on earth.”
 

In addition to execution risk, competitive threats have dragged on Tesla shares. On Wednesday, Volvo said it planned to electrify its entire lineup and have five models powered entirely by batteries in its lineup by 2021. The Swedish carmaker owned by China-based Geely Automobile Holdings underscored that Tesla will soon have more competition coming from major carmakers, Barclays analyst Brian Johnson said.