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Tesla Plunged Following Battery Day. Here’s Why It Will Fall Further

Published September 23, 2020 5:02 PM
Stephanie Bedard-Chateauneuf
Published September 23, 2020 5:02 PM
  • Wall Street had high expectations for Battery Day, which weren’t met.
  • Innovations announced by Elon Musk will take several years to materialize.
  • Tesla stock is overvalued and needs catalysts to go higher.

Investors had elevated expectations about Tesla’s Battery Day, but it ended up being a colossal disappointment. Tesla CEO Elon Musk said some of the innovations showcased at the event were “close to working” and about three years away from materializin g. Tesla shares opened more than 5% lower on Wednesday.

Tesla stock, TSLA
After a big bull run from March lows, Tesla stock is declining sharply after disappointing investors. | Chart: Yahoo Finance 

Promised Battery Day Innovations Are Off in the Future

Musk announced several production and manufacturing developments that could lead to better and cheaper cars. The multi-year calendar of improvements to be made and the lack of concrete goals disappointed Wall Street.

Major Tesla bear reacts to Battery Day promises. Watch the video below:

During a three-hour presentation in front of a parking lot filled with Tesla shareholders in their vehicles, Musk explained how the company would cut battery costs by more than 50% through vertically integrating manufacturing.

He announced plans for a new $25,000 fully autonomous vehicle within three years and said the company hopes to produce three terawatt-hours of batteries by 2030. In the long run, he sees Tesla making 20 million cars a year.

The electric-car maker failed to deliver a one-million-mile battery as was expected.

JPMorgan noted: 

Like other Tesla investor days, Battery Day was not without its share of lofty goals and grandiose projections, although these were of a decidedly longer-dated nature than at past events.

Expectations had been mounting for months before the event, which was delayed due to Covid-19. Musk himself stoked the excitement through tweets about the “many exciting things” that were about to be revealed.

On Monday evening, however, he took to Twitter to remind everyone that the announcements will affect “long-term production” and that developments “will not reach serious high-volume production until 2022”.

Some are questioning Tesla’s ability to reach its targets.

Goldman’s Mark Delaney said: 

We expect the ability and timing for Tesla to fully achieve these targets to be one investor debate post the event, as Tesla has not always met its past targets.

Following the event, he reiterated his neutral rating, while raising his 12-month target to $400 from $295.

Tesla Stocks Lacks Catalysts

Baird analyst Ben Kallo raised his price target for Tesla to $360 from $332 . Its new target is 15% below Tuesday’s closing price of $424.23.

Kallo reiterated his neutral rating but said he believed the risk/reward scenario for investors was skewed negatively. He said that while Tesla does accomplish “impressive” things, the current valuation already reflects significant disruption potential. The trailing P/E, at 1.02k, is huge.

Tesla stock would need catalysts to go higher. Its long-term prospects are still great, but shares are too expensive to justify a buy. The recession might impact the demand for electric cars. 

Kallo wrote in a note to clients: 

With the Battery Day in the rearview, we think there is a lack of upcoming catalysts and are cautious about demand given the recessionary environment. We are not downgrading to an underperform given our long-term constructive view of [Tesla], but we do think there will be an opportunity to buy shares lower.

The company got only one upgrade from Deutsche Bank  following the event, but the dominant narrative seemed to depend on its promises against its ability to execute.

Despite the recent plunge, Tesla stock is still up more than 350% for the year. Shares are about 10% lower for September.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.