By Claudia Assis at Marketwatch
Tesla Motors Inc. will continue to burn through large amounts of cash in its quest to become a bigger car maker, and Wall Street may be underestimating how much spending is still to come, analysts at Barclays said in a note Friday.
Tesla TSLA, -2.68% doesn’t have a good track record in spending efficiently, and its business strategy will keep it a capital-intensive company, the analysts said. They estimated Tesla, which has consistently lost money, will go through $11 billion in capital spending over the next five years.
Morgan Stanley analysts, who have long been positive on the company, recently said they expect Tesla to burn through nearly $1 billion in the next 12 months, but that its cash burn is outweighed by its “bigger mission.”
See also: Tesla may challenge Uber soon, says Morgan Stanley
The Barclays analysts, among the biggest Wall Street skeptics toward the company, kept intact their sell rating on the stock and a price target of $180, which is about 15% below the current stock price. Most analysts have a hold on the stock, and the average target price is $277.88, according to FactSet.
Tesla’s share price has fallen 13% in the past three months, compared with losses of 2.4% for the S&P 500 index. SPX, -1.06% It has declined 6% so far this year, while the index has lost 1.3% in the same period.
Tesla’s strength is in its software prowess, such as its over-the-air technology updates and its driverless features, the Barclays analysts said. It has been challenging for the company to accomplish the “more mundane, yet crucial,” task of manufacturing cars efficiently, they said.
“We are concerned that the capital intensity of the core automotive business may further overshadow Tesla’s competitive edge in software,” they said.
If the company doesn’t become more efficient in making its planned mass-market car, the Model 3, it runs the risk of running out of money to invest enough on the software side — the products that make Tesla “truly differentiated,” they said.
Pre-orders for the Model 3 are expected to begin in March, but production is about two years away. Tesla CEO Elon Musk has said he expects the car to cost $35,000, but the Morgan Stanley analysts say the cost is more likely to be between $55,000 and $60,000.
Tesla last month rolled out a global, over-the-air software upgrade that added or upgraded semi-autonomous driving features to its cars.Musk said the company is three years away from a fully autonomous car.