It's getting increasingly harder to be a Tesla bull.
Bulls have long cited the arrival of the lower-priced Model 3 and CEO Elon Musk's vision as reasons to invest in the electric-car maker.
Each of those parts of the bull thesis has come under pressure in recent weeks.
The bull case for Tesla faces no shortage of obstacles.
Shares of the electric-car maker fell as much as 5.2% Tuesday, to their lowest level since October, after the Chinese news agency Caixin reported that China a market considered a key growth opportunity for Tesla was halting Model 3 sales due to "various irregularities" in 1,600 Model 3 sedans. China's customs authorities later accepted a plan from Tesla to remedy the imported cars' clearance issues, Reuters reported.
Meanwhile, CEO Elon Musk has until March 11 to tell the Securities and Exchange Commission why he shouldn't be held in contempt of court over tweets he posted last month that the federal agency says violated the terms of its settlement with the executive.
At the same time, amid the highly anticipated $35,000 Model 3 unveiling last week , Tesla also said it would shutter many of its retail locations and shift sales online. The company also disclosed it was unlikely to turn a profit in the first-quarter after previously forecasting it would profitable in " all quarters going forward ," and cut the price of its Model S and Model X vehicles.
Amid the rapid developments surrounding Tesla, and as pressure builds on its share price, analysts are telling clients the bull thesis appears to be shifting before investors' very eyes.
"Much of the bull narrative has rested on Tesla being the next Apple, selling high-volume EVs at premium price point and at high gross margins, in part aided by a unique branded retail presence a narrative we see as undermined by the recent price cuts and closing of most of the stores," Brian Johnson, an analyst at Barclays, wrote Tuesday.
"Nevertheless, we believe the bull narrative will shift to Tesla as a combination of Amazon and Ford Model T. That is the new strains of the bull argument are now that eliminating stores, on top of the prior disruptive innovation of the eliminating franchise dealers, means that Tesla has an unassailable cost advantage, as does Amazon versus traditional brick-and-mortar retail."
Johnson cut his price target from $210 to $192 implying a 30% drop from current levels and maintained his "underweight" rating on the belief that increased volume and cost savings are unlikely to offset the company's lower margins.
Furthermore, demand is a key risk facing the bull case for Tesla. Cowen analyst Jeffrey Osborne said he saw the recently announced shift to online sales as a "'Hail Mary' in the face of a largely exhausted U.S. demand for higher priced variants."
In a similar vein, Citi analyst Itay Michaeli told clients that while bulls will "applaud Tesla's pricing achievement," bears could suggest the move was motivated by slowing demand.
"If demand doesn't surge from here (or if Tesla struggles to meet it/service it), the bull case could suffer meaningfully," wrote Michaeli, who rates the stock as "sell/high risk," with a $273 price target.
"If demand does surge, the bull case will likely live on (through Model Y) even if Tesla's gross margins end up lower, so long as the company can be profitable in Q2/beyond."
As of Tuesday, "sell" ratings outnumbered "buy" ratings. According to data compiled by Bloomberg, 13 analysts say "buy," 14 say "sell," and 8 say "hold."
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