Since the start of the year, the Tesla (NASDAQ:TSLA) share price has fallen by around 25%. The reasons aren’t clear, but the company hasn’t suddenly become a bad business in the last month.
As a result, Adam Jonas at Morgan Stanley has a $345 price target on the stock. That’s an 83% increase from today’s prices, so is there a buying opportunity here?
Tesla’s troubles
I think there are two main issues facing Tesla at the moment. The first is a weak macroeconomic environment and the second is concerns around its CEO.
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The company’s earnings update last month was not particularly strong. Overproduction led to price cuts, which resulted in lower margins and weak earnings.
On top of that, though, management’s guidance going forward was impressionistic at best. This left investors largely trying to figure out the path for the business by themselves.
This might be the consequence of a third issue. Elon Musk has recently stated that he wants 25% of the voting control in order to feel comfortable continuing to develop products for Tesla in future.
All these issues are weighing on the Tesla share price at the moment. But some of them look more serious to me than others.
Be greedy when others are fearful…?
The weak numbers in the earnings report shouldn’t – in my view – have surprised anyone. This is largely the result of a weaker macroeconomic environment.
If I thought this was the biggest issue, I’d be seriously considering buying Tesla shares. But I’m more concerned at Musk’s demand for more equity.
One issue is that it would come at the expense of existing shareholders. But a bigger concern is that I’m not clear what stops this happening again in the future.
One reason Musk doesn’t own 25% of Tesla is because he sold stock to buy the business formerly known as Twitter. In my view, it’s not up to shareholders to reimburse that with more equity.
Warren Buffett says the time to be greedy is when others are fearful – and people seem pessimistic with Tesla right now. But while I think some of that is short-sighted, I see real issues here.
The road to £345?
There’s a real possibility that things could turn around quickly for Tesla. It’s not unimaginable that the macroeconomic environment could improve and the issue with Musk’s demands blows over.
If that happens, then I wouldn’t be at all surprised to see the stock rally sharply, reversing its losses from this year and much more besides. But that might be a big ‘if’.
It’s impossible to say whether or not pessimism around Tesla shares has reached its peak. But right now expectations built into the share price are much lower than they were at the start of January.
