Tesla Inc. is months away from product launches that could revolutionize several industries. The most anticipated - the Model 3 electric car - is to be accompanied in 2017 by the unveiling of an electric semi-trailer truck, autonomous driving capabilities, and a ride-hailing network. Throw in the Powerwall and solar shingle, and you've got the makings of a busy year.
With all this going on, the stock has been on a tear - rising 48 pe rcent in just three months. But Wall Street has begun to dissent. Analysts now consider Tesla more overvalued than at any previous time, and a technical analysis of the stock is setting off alarms.
First, it's worth noting just how far Tesla has soared. The company's market value reached record highs last week following an $18 billion dollar stock run. The automaker is now worth more than Nissan Motor Co. and sits within spitting distance of its biggest American rivals - Ford and GM. By market value at least, the scrappy Silicon Valley upstart has become one of America's Big Three.
Ford Motor Co. and General Motors Co., however, are more than a century old and sell millions of cars each year, compared with Tesla's deliveries of fewer than 80,000 in 2016. Tesla Chief Executive Officer Elon Musk has forecast between 100,000 and 200,000 sales of the Model 3 in the second half of this year, but few analysts believe he'll achieve even the low end of that target.
Tesla's stock price may indeed be ephemeral. The following chart shows the gap between analyst price targets for the next 12 months and Tesla's current share price. Normally this spread should be in positive territory, indicating that analysts expect an investment's value to increase over time. Not so with Tesla. The median target of 14 analysts surveyed by Bloomberg was as much as $48 below Tesla's stock price last week. That's the most pessimistic view from Wall Street since Tesla became a publicly traded company seven years ago.
For the Tesla optimist, it might be tempting to blame this price spread on laggy analysts who haven't updated their forecasts to reflect recent milestones. But the forecasters haven't wavered: Not one of the six analysts who updated their targets in February raised their expectations.
We "see no fundamental reason for run-up," said UBS Securities LLC analyst Colin Langan in a note to clients last week. His latest 12-month target for the stock price is $160 - a splash of cold water given that Tesla shares broke $280.
Stock price isn't everything, of course, but for Tesla it's unusually important. The company loses money every year as it builds the infrastructure it needs for growth: the world's biggest battery factory, an auto plant scaled for mass-producing the Model 3, and a global network of stores, service centers, and car chargers.
"Tesla is a serial capital raiser," said Morgan Stanley analyst Adam Jonas, who reiterated his target of $305 last week. "As such, its ability to sustain its operations and fundamental value is inextricably linked to the very performance of its share price, creating a self-reinforcing momentum."
Tesla's momentum can work against it or, as of late, in its favor. This time the stock price may have gotten ahead of itself, according to a technical analysis tool called the Relative Strength Index (RSI). RSI measures the speed and change of a stock price to warn investors when a stock's momentum has carried it too far. An RSI reading above 70 indicates that a stock is "overbought" while anything below 30 is "oversold."
Last week Tesla's RSI topped out above 83, the highest "overbought" reading in almost four years. With an RSI analysis, the "sell signal" for a stock occurs when the elevated reading falls back below 70, which is exactly what happened at the end of last week.
Technical analysis and Wall Street estimates both have limitations. Foremost among them is the inability to predict the future when there's no precedent to model it on.
Tesla is betting on exponential growth curves that result in widespread adoption of electric cars, massive battery stations to back up the world's electric grids, new glass solar shingles for rooftop power production, and autonomous cars for ride-sharing fleets. Even if these transformations occur, the timing is difficult to foresee, and analysts naturally discount their potential.
For now, Tesla investors are in a purgatory of expectations. The company reports 2016 earnings Wednesday, and no one knows what to expect, or even how much it matters. Until Tesla's new products have the opportunity to prove themselves - the Model 3 foremost among them - uncertainty remains. Whether the intervening months are filled with unnerving financial risk or a sense of boundless opportunity depends on investor disposition - and to some extent, the momentum of the stock itself.
The company recently began production of Model battery cells and packs at its new Gigafactory in Nevada and completed an unprecedented battery storage project in California. Model production appears to be on schedule.
Tesla's momentum issue is also compounded by bets made against the stock. The company is consistently among the Nasdaq's most-shorted stocks.