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Tesla Short Seller Issues Scathing Warning Of Pending ‘Death Spiral’

Alissa Williams, Investor's Business Daily

Tesla Motors (TSLA) shares got slammed several weeks ago after analysts doubted the electric carmaker’s bullish production guidance. Now that the stock has tried to recover, bears want to take the driver’s seat again. Devonshire Research Group is shorting the stock and on Tuesday issued a report that says Tesla “has the potential to enter a death spiral” if it fails to deliver on its “bold claims on return and/or product value.”

The investment firm also said Tesla “has engaged in aggressive accounting that calls to mind the experiences of Enron and WorldCom.”

A Tesla spokeswoman directed IBD to the company’s latest shareholder letter, which explained that Tesla’s non-GAAP financial measures recognize revenue and related costs when customers take delivery of their cars. Other carmakers book revenue when vehicles are sold into dealership inventory rather than to end customers, it noted.

BofA Sees 30% Downside

And on Monday, Bank of America resumed coverage on Tesla with an underperform rating and 155 price target, which is about 30% lower than current prices.

With the company’s recent equity offering, the analyst warned of further dilution to the stock, given Tesla’s cash burn rate. Tesla’s 2018 production goal was also called “optimistic at best.”

Still, other Wall Street analysts have said the target is achievable and applauded Tesla for its leadership in autonomous driving technology.

Global Equities Research said that suppliers are becoming more and more interested in working with Tesla, with the current supplier activity level at its Fremont, Calif., factory almost twice the level seen in December.

Tesla Stock Hits Resistance

Despite the negative reports, Tesla shares held up in the stock market today, rising 0.8% to 217.91. But in Monday’s session, Tesla’s attempt to retake the key 200-day line failed as it hit resistance there. Shares are trading 24% below their high reached last July.

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