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The former International Monetary Fund (IMF) economist who shorted Bitcoin from $20,000 to $3,500, Mark Dow, has said shorting Tesla might be the trophy trade for 2019.
This pessimistic forecast of Tesla from Dow comes during a time in which strategists remain concerned about the short-term future of the company and its drastic change in strategy.
On March 1, following the release of Tesla’s (TSLA) statement on its plans to switch all sales online and close down many of its galleries and stores, Lake Ave Financial CEO Alex Chalekian said that the company sold its position in Tesla for advisory clients.
It pains me to say this, since I really love the company, but we have sold our position in #Tesla for our advisory clients. I believe that the decision to close retail stores is a bad one and points to the weakness in sales and financial strength of the company. $TSLA
— Alex Chalekian (@AlexChalekian) March 1, 2019
The growth of the revenue of Tesla has exceeded the expectations of analysts. However, the company reached its first profitable quarter in 2018 and the complete 180 change in strategy from expanding retail stores to move all sales online has shown that the company is on a weaker footing.
Tesla’s Sweet and Sour News
Elon Musk told reporters on Thursday that Tesla has started taking orders for the $35,000 model 3. This was great news for the company, finally delivering on its 2-year-old promise the South African Entrepreneur had made. On the other hand, he announced some bad news including job cuts and closing stores in order to trim costs.
The worst of the news was by far the announcement that the company will not post a profit in the first quarter. This sent the stock tumbling after hours wiping the gains it had made previously during the day as investors had trusted Musk’s promise that Tesla’s loss-making days are over.
Few days ago Musk said Tesla would not be profitable in the first quarter of 2019 and disclosed that Tesla is closing most of its brick-and-mortar stores.
Shares of the electric-car maker fell as much as 5.2% Tuesday, to their lowest level since October, after it was reported that China, a market considered a key growth opportunity for Tesla, was halting Model 3 sales due to “various irregularities” in 1,600 Model 3 sedans. China’s customs authorities later accepted a plan from Tesla to remedy the imported cars’ clearance issues. The stock price was holding slightly higher at $276.91 at the time of writing.
Meanwhile, Musk has until March 11 to tell the Securities and Exchange Commission why he shouldn’t be held in contempt of court over tweets he posted last month that the federal agency says violated the terms of its settlement with the executive.
Brian Johnson, an analyst at Barclays wrote:
“Much of the bull narrative has rested on Tesla being the next Apple, selling high-volume EVs at premium price point and at high gross margins, in part aided by a unique branded retail presence – a narrative we see as undermined by the recent price cuts and closing of most of the stores.”
He also added that they believe the bull narrative will shift to Tesla as a combination of Amazon and Ford Model T.
“That is the new strains of the bull argument are now that eliminating stores, on top of the prior disruptive innovation of the eliminating franchise dealers, means that Tesla has an unassailable cost advantage, as does Amazon versus traditional brick-and-mortar retail.”
Citi analyst Itay Michaeli told clients that while bulls will applaud Tesla’s pricing achievement, bears could suggest the move was motivated by slowing demand.
“If demand doesn’t surge from here (or if Tesla struggles to meet it/service it), the bull case could suffer meaningfully.”
Michaeli rated the stock as “sell/high risk,” with a $273 price target and added that if demand does surge, the bull case will likely live on (through Model Y) even if Tesla’s gross margins end up lower, so long as the company can be profitable in Q2/beyond.
Analysts mostly agree that unlike many in the tech world, Tesla is a company Wall Street never knows exactly what to do with. When the company is performing well, outside noise (including SEC investigations) scare investors away. When things are quiet, the company reports challenges. It’s a classic scenario of “what goes up must come down,” as is the case with Tesla’s stock chart over the past 12 months.