Tesla Could Face Huge Stock Price Cut Says Bank of America

In a recent in-depth review of Tesla’s current developments, John Lovallo, an analyst at Bank of America Merrill Lynch starts asking the right questions about Elon Musk’s company. Basically, he’s saying that in the foreseeable future, the American EV manufacturer could face a dramatic drop in stock prices.
Elon Musk 1 photo
Photo: Tesla
The thing is, this is not news to the Wall Street scene or the auto industry. Ever since Tesla started making cars, there have been all sorts of rumors out there, predicting a quick and inevitable downfall. What’s changed this time?

Well, this time, the man making these assumptions is one of the biggest supporters of Musk and his work. As far as people that support him go, you'll have to look long and hard to find one more adamant than Lovallo. He’s been covering Tesla for quite some time now and his recent take on things is rather surprising.

There’s a pattern in here as well. If you know Tesla and how they operate, you’ll soon realize that they are actually selling the future without no proper backing to rely their claims on. Every time Elon comes out and talks about the plans he has, the media listens and stock values rocket.

The main problem that could be the downfall of Tesla according to a recent report from another analyst, Morgan Stanley’s Adam Jonas, is banking on the fact that it's a company that makes only one car in one factory.

While we’d be tempted to agree with him, as long as the profit margin on each car sold is maintained at a certain level, there’s no way Tesla will go bankrupt, even with only one model in the plant. The big problem here, from a Wall Street investor's point of view is that the value of the company won’t go up and that backers will lose faith in their investment, therefore leading to a drop in stock price. This way, yes, it could turn out for the worse.

However, the recent trend shows a growing interest in electric cars and, like it or not, Tesla is at the forefront of this field. Furthermore, plans are to increase the portfolio/range of cars they make in the near future.

Just late last year we got the P 85D that is, admittedly, a variation of the Model S but it’s still something new, selling like hot cakes. On top of that, they just confirmed the Model X that will be soon entering production, offering a second model for the range.

Then again, there was talk of the Model III but that’s part of Elon’s smoke and mirrors strategy.

Other companies chipping in

The advantage Tesla has right now lies in its batteries. Everyone wants them and everyone is willing to pay for them. Daimler is already using this tech inside their electric B-Class and we’ll soon be getting a new factory that will be manufacturing only batteries for multiple purposes.

That’s yet another plus for the company run by Musk. To top everything off, there’s been recent interest from Apple to try and create an electric car, possibly as a rival for Google’s self-driving project.

Just at Sunday’s Academy Awards ceremony, Elon Musk and Jony Ive, the famous Apple designer, were reportedly seen spending a lot of time together. That could point to the fact that they are discussing putting their resources together for mutual profit. And if there’s one company that knows how to sell a small range of products to the entire world and make huge profits, that’s Apple.

It’s also a company that seemingly had the same track record, with a lot of ‘analysts’ predicting its bankruptcy a number of times, only to be proven wrong time and time again, even after Steve Jobs passed away.

Bottom line, Elon Musk knows how to sell his business and how to look after it. The recent development of alternative means of earning profit (via batteries alone and sharing technology with other manufacturers) and prospective new models along with a possible collaboration with Apple do point to a worried CEO but then, they also represent the means to keep the company afloat.

Whether Lovallo is right or not we’ll just have to wait and see but stock varies all the time and lately, some ill witted rumors seem to have chipped in to drive the prices down. This could all be a coincidence or an orchestrated effort, your guess is as good as mine but I think that we haven't seen the last of Elon Musk's work.
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