Jefferies Cuts Tesla (TSLA) Rating, Wants Greater Visibility Into Company Operations

Tesla (NASDAQ: TSLA) as a speculative venture has been a serious hot-button for the last few months now, but there are some analysts out there beginning to wonder if the Emperor is as smartly-tailored as he claims to be, or merely as naked as he looks. Joining the Greek chorus of concerned analysts is Jefferies, who pulled a move increasingly familiar in analyst circles. It not only cut Tesla's rating, but it also raised its price target on Tesla shares.

The Case for Cutting and Raising Together

Jefferies analysts cut Tesla's rating from the previous rating of “buy” to “hold,” and at the same time, hiked Tesla's price target from its now-clearly ludicrous level of $600 per share to a now-much more reasonable $800. Given that the stock closed yesterday at $799.91, and is trading at $793.70 as of this writing, the price target hike was likely reasonable.

The rating cut, however, came with a lot more than raw numbers behind it. Jefferies analysts noted that they wanted a better look at potential profitability for the company, as well as more information about its upcoming “battery day” event. Valuations, as Jefferies analysts who got together on a note mentioned, needed to be connected to basic fundamentals like overall market size and potential profitability.

Still, Plenty Going for Tesla, Though

The Jefferies analysts noted that Tesla did have visible positives, including the fact that it was gaining ground in electric vehicles at a time when “legacy OEMs” were having to face some hard choices in the overall strategy. In fact, some were even looking to Tesla as a potential supplier to other original equipment manufacturers (OEMs) in the market.

Yet most are looking to April when it comes to talking Tesla; the company's upcoming “battery day”, in which it offers up a look at its battery technology and near-term capability therein, is set to provide much of the desired visibility analysts are looking for, and hopefully will produce positive results while it's at it.

Will Tesla Short-Circuit Before Battery Day?

While Tesla has some clear advantages to its credit, it's also got some significant struggles to take on in the field. The most obvious of these is coronavirus, which has thrown a massive monkey wrench in the attempted outward expansion of Tesla's operations in Asia, especially in China. The recently-built gigafactory in China is quiet for now—though for how much longer is anyone's guess as the Chinese economy chokes on the lack of workers—and that's doing double-edged damage on both supply and demand.

Tesla's efforts to expand in Europe have met with some troubles as well. Tesla finally managed to overcome problems in Germany that kept the company from building, including everything from court orders to the unexpected discovery of unexploded World War II munitions on the property. Now it has the unexpected problem of having to clear a chunk of forest ground before it can start building, which in and of itself is a serious problem in optics. Tesla cars are supposed to be the environment's new best friend, but in order to start building them, Tesla is going to have to cut down a pine forest said to be the size of 100 soccer fields. Notably, Tesla promised to plant three trees for every one cut down, but that means sourcing enough seedlings to cover 300 soccer fields' worth of forest. That's on top of various other issues, including finding a way to humanely evict any wolves that might be living in the vicinity.

In perhaps the biggest pothole on Tesla's road to profitability, that “battery day” that's coming up will be coming up amid a strange new development. New word emerged that put Tesla and Panasonic's (OTCMKTS: PCRFY) joint venture to produce solar cells at Tesla's Gigafactory 2 location in Buffalo, New York on ice. The deal had been in place since 2017, and called for Panasonic to make solar cells therein for Tesla to offer up, especially as part of its Solar Roof system. Currently, though, Tesla is using solar cells made in China, a move that might well have bought it advantage back before the coronavirus, but now, maybe not so much.

Battery Day will likely prove the catalyst for Tesla's ongoing rise or catastrophic failure, as we get a better look at just what's going on under the Tesla organization's hood. There's certainly a lot to like here, but plenty of pitfalls potentially on hand as well.