SAN FRANCISCO (Reuters) – Tesla shares extended their recent sell-off on Wednesday after Citi cut its price target on the struggling electric car manufacturer, making the buyers of its recent share offer, including the Chief Executive, Elon Musk, $175 million in the hole.
FILE PHOTO: CEO of Tesla Motors, Elon Musk poses during a television interview after his company’s initial public offering to the market, or NASDAQ in New York, June 29, 2010. REUTERS/Brendan McDermid/File Photo
Tesla’s share decreased from 5.5% to $193.88, on track to close below $200 for the first time since the end of 2016. It has lost a fifth of its value since the company sold a $1.84 billion convertible bond and almost $900 million of stock on May 2, to raise fresh capital and give more time to stop losing money.
Citi analyst Itay Michaeli, who has a “sell” rating on Tesla, cut his price target from $191 of $238. He pointed to an e-mail Musk sent to employees last week, telling them he would raise, to cut costs, and that the $2.7 billion in the recently increased capital would give Tesla just 10 months to break even on the price of the burned cash in the first quarter.
“The recent reported internal memo, which seemingly called into question prior guidance, not help the risk/benefit analysis. The consequences can be serious, because an automaker in the balance sheet is always subject to the confidence of the ‘spiral’ – risk,” Michaeli wrote in a client note.
Consumer Reports warned Wednesday that a recent update to the Tesla’s autopilot driver assistance software does not work properly and may be unsafe.
“It doesn’t seem to react to brake lights or turn signals, it can not anticipate what other drivers will do, and as a result, you must always be one step ahead,” Jake Fisher, Consumer Reports’ senior director of automotive testing, said in a press release.
Tesla did not immediately respond to a request for comment. On 22 April, Musk told investors that driverless Tesla “robotaxis” would be available in some U.S. markets next year, a claim met by scepticism by a number of boards of experts.
UPPING HIS STAKE
Musk is fighting to convince investors that demand remains high for the Model 3, a sedan aimed to propel Tesla to sustainable profit, and that it can be delivered efficiently and quickly to customers all over the world. Tesla lost $702 million in the first quarter and warned that earnings would be postponed until the second half of the year.
On Monday, Musk exercised options to purchase 175,000 Tesla shares at $31.17 per share, increasing his indirect stake in the company to 34,102,560 shares, according to a filing. With Tesla’s stock was down 41% year-to-date, Musk shares, including 102,880 he bought in this month to increase the share capital, were worth $6.6 billion on Wednesday.
Tesla’s debt is stuck at lows hit earlier this week. The recently issued convertible bonds mature in 2024 priced at 89.09 cents on the dollar, a record low. The $1.8 billion in junk bond traded at 82.5 cents on the dollar, slightly higher from the all-time lows it hit on Monday and Tuesday.
The cost to insure Tesla’s debt, as measured by the credit default swap, edges up to about 28% of the nominal value of Tesla’s 2025 bond, from 27.6 % the day before.
Reporting by Noel Randewich; additional reporting by Kate Duguid in New York and Vibhuti Sharma in Bengalaru; editing by Nick Zieminski and Jonathan Oatis