Elon Musk tweeted Saturday he will sue Alameda County in his escalating battle to restart Tesla’s flagship Fremont, California plant. An epic twitter battle ensued in the hours following the tweet with some twitter followers offering support and others threatening to boycott the company for flouting government edicts.
The news makes for high drama, but don’t be surprised if the stock gets a pass.
(ticker: TSLA) shares, to this point, have been relatively immune to production stoppage issues arising from the Covid-19 pandemic.
Musk, however, took a dramatic tone, calling Alameda health officials “unelected and ignorant” and said the ongoing lockdown was the “final straw” and that future facilities would be in Nevada and Texas. Musk’s ire is rising because Alameda county, along with others in the San Francisco region, recently extended the local stay at home order through the end of May. The order was set to expire May 4
The company, though, sounded more measured. It posted a “return to work playbook” on its website, illustrating how the car maker planned to restart production safely and pointing out Tesla is the largest manufacturer in the state.
A similar issue reared arose over Chinese production last week. Tesla’s other full assembly facility is in Shanghai and opened around the beginning of the year. That plant has been shut for about a week. Originally, the plant went down for local holidays and planned maintenance. But the plant, according to multiple reports, didn’t reopen on schedule. Wall Street has speculated that Covid-19 related parts shortages are to blame. Tesla didn’t respond to multiple requests for comment about the plant.
The stoppage in China prompted Roth Capital analyst Craig Irwin to write in a Friday research report the unplanned outage “underlines downside risk” to Tesla’s second-quarter forecasts. He recommends investors be wary of the stock.
Others on Wall Street weren’t as concerned. “This is not a big deal,” New Street Research analyst Pierre Ferragu told Barron’s. Any problems, according to Ferragu, should be temporary and aren’t important when looking at Tesla stock over a longer time horizon. He is a Tesla bull. He rates shares the equivalent of Buy and has Street-high $1,100 price target. The Shanghai production certainly didn’t hit the stock. Tesla shares rose 5.1% Friday to $819.42 a share. The
Both analysts have a point. Parts shortages are likely as the global economy restarts after a Covid-related slumber. They aren’t a surprise. And manufacturing should return to normal eventually. Still, Tesla’s incredible stock run has been catalyzed, in part, by strong quarterly earnings. Second-quarter 2020 numbers will matter to investors. Tesla shares are up more than 240% over the past 12 months.
Deciding whether Tesla’s second-quarter earnings are good or bad will be difficult. Wall Street estimates are all over the place, ranging from about 40,000 to 120,000 units. The average is 70,000 cars to be delivered during the current quarter, while Irwin’s estimate is 60,000 units. As a result, investors might have to give the company a pass.
The delivery dichotomy also illustrates how widely Wall Street opinions on Tesla stock vary. Price targets range from roughly $300 to north of $1,000, with Roth’s Irwin, who rates shares the equivalent of Sell, putting a $350 price target for the shares, and New Street’s Ferragu sitting at $1,100. The average analyst price target at about $620 is notably below recent trading levels, while the average target price for stocks in the
Dow Jones Industrial Average
implies a gain of 13%.
Tesla is a controversial stock led by a controversial executive—and will almost certainly stay that way.
Write to Al Root at firstname.lastname@example.org