A well-respected Bernstein analyst reportedly has predicted Tesla Inc. shares will plunge as it nears an unprecedented $10 billion cash burn.
Bernstein reiterated its market-perform rating for Tesla shares, telling investors to avoid buying the stock due to Model 3 production risk, CNBC reported.
"Tesla's persistent cash burn has been a major investor controversy … In fact, Tesla may be the largest public company in history to have never generated either positive annual cash flow or positive annual profit," Toni Sacconaghi, a senior sell-side equity research analyst at Sanford C. Bernstein, wrote in a note to clients Wednesday.
With many on Wall Street betting that Tesla will establish itself as a major electric car seller before General Motors Co. and other rivals can catch up, its stock has surged 62 percent in 2017.
The analyst estimates Tesla will burn through $4.7 billion of cash this year reaching a total $10.6 billion of cash burn as a public company by the end of 2017, which is unprecedented for a nearly $60 billion market cap company, CNBC.com explained.
"We believe the essential issue with Tesla's stock is not how much cash the company burns right now, but rather how well the company can execute upon its Model 3 launch – specifically around gross margins - and demonstrate that it has a clear path to long-term profitability," he wrote.
"We are fairly bullish on the evolution of the EV [electric vehicle] market, but we worry about several near-term issues for Tesla, and would not be chasing the stock at current levels," the firm's analyst writes.
Meanwhile, shares of Tesla emained in a correction Wednesday after a billionaire British inventor announced plans for his own electric vehicles, taking the shine off an analyst prediction that Tesla’s cars would be commonplace within two years, Reuters reported.
In late Wednesday trading, Tesla shares were at $344.25
After losses in recent days, it remained down 10 percent from a record high on Sept. 18. Many investors define a correction as a 10 percent decline. In July, Tesla lost 18 percent over nine sessions before recovering and advancing to new highs.
Underscoring growing competition, however, James Dyson, inventor of the bagless vacuum cleaner, said at a London event on Tuesday that his company was building an electric car that will launch by 2020.
Dyson said his company would spend 2 billion pounds ($2.7 billion) on solid-state battery technology and vehicle design and that a 400-member team of engineers had already spent 2-1/2 years working on the secret project.
Tesla Chief Executive Elon Musk has promised to boost car production to 500,000 vehicles next year, close to six times its 2016 output, a target that many auto industry experts believe is unrealistic.
Meanwhile, Morgan Stanley analyst Adam Jonas estimated in a note that nearly 300,000 Tesla vehicles would be on the road by the end of 2017.
“Hope you like the way the Model 3 looks, because you’re just going to see a lot more of them,” Jonas wrote. “However, as vehicle scarcity changes in such a short period of time, will the car be as cool anymore? We can’t possibly say.”
(Newsmax wires services contributed to this report).
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