News of layoffs and likely lower fourth quarter earnings sparked investor concerns over growth and demand at Tesla Inc., and traded the company's shares by almost 10% on Friday.
The shares traded at $ 312.90 and were on their way to their largest percentage decline since the end of September, when they stumbled 14%. Equities fell 8% in the last 12 months, while the S & P 500 lost around 5%.
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"We believe Tesla has probably increased its workforce by more than last year, and some of these employees are being fired to cut costs," said Garrett Nelson, automotive analyst at CFRA Research.
"For most automakers, cost cutting would be well received, but in the case of Tesla, investors are starting to wonder if demand is the real issue," Nelson said.
In a memo to staff reviewed by The Wall Street Journal and later posted on the company's website, Chief Executive Elon Musk said Tesla will post GAAP earnings when it announces the fourth quarter results, "but less than the third Quarter. "Tesla has not yet set a date for the quarterly results.
Continue reading: Tesla warns of profit in the fourth quarter, reduces the number of jobs and lowers the price for model 3
Tesla needs to be able to offer cheaper model 3, especially if US tax credits continue to fall in the middle of the year, Musk said. Tesla's employees, who last year "more than we can support," will be reduced by around 7%.
Despite the stock's rapid reaction, most sell-side Wall Street analysts seemed to stick to their predictions for Tesla.
See also: Elon Musk kills the Tesla Referral Program and suggests it affects margins
"Tesla is in a situation where there is a fork in the road that will ultimately shape the future of the company." With the production of mid-tier and base model 3 models increase the tax credits for electric vehicles in the US Dan Ives von Wedbush said in a note on Friday.
"The reaction to this morning's blog post will be clearly negative from the street perspective, as there will be more questions than answers until the company officially announces profits / forecasts in early February," he said.
Nevertheless, Tesla is likely to prove to be a stronger, more profitable and geographically diversified company over the next 12 to 18 months, Ives said, maintaining its valuation of the stock at Buy equivalent.
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Likewise, Canaccord Genuity's Jed Dorsheimer said that if investors "step back and the dust calms down, we believe these steps can be viewed as positive to align the business and set up a more favorable 2019 year."
Canaccord kept Tesla in the rating.
Investors' equity has fallen in the face of Tesla's growth momentum, but "the downsizing is not unreasonable, as the company accelerated the hiring phase during the Model 3 production ramp and has now completed the labor-intensive part," said Ben Kallo of Baird.
"After the announcement, we would be buyers with weakness."