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4 Key Reasons for Tesla's (TSLA) Recent Selloff

Shares of Tesla TSLA plummeted over 7% on Monday morning, as part of a roughly 25% month-long decline. The electric car maker’s recent downturn has seen investors flee based on a slew of major concerns. Let’s take a look at four of the biggest.

Model 3 Production

Analysts at Jefferies believe that Tesla most likely fell short of its own first quarter Model 3 production goals. Tesla estimated that it would deliver 10,000 mass-market Model 3s in the period and eventually reach a production target of 2,500 vehicles per week.

There is no guarantee that Tesla will fall short of its own production projections. But Jefferies analyst Philippe Houchois wrote in a note to clients on Monday that it’s “about the magnitude of the miss.”

Accident

It has been more than a week since a Tesla crash sparked new worries about the company’s semi-autonomous autopilot system. Tesla recently released some of its initial findings on the deadly accident, which stated that the driver had time to put his hands back on the wheel and react to autopilot-related warnings.

However, the National Transportation Safety Board announced that it is “unhappy” that Tesla revealed some detailed information about the accident because the NTSB’s probe into the crash is ongoing.

Recall

In a move that might scare investors even more than an accident, Tesla announced late last week that it will voluntarily recall roughly 123,000 Model S sedans. The electric automaker issued the new recall after Tesla found that some of its bolts could corrode in cold weather and possibly lead to a power-steering failure.

The recall only impacted Model S vehicles built before April 2016, but Tesla’s latest recall marks the third time the Model S has been recalled since it first came to market. This latest recall also accounts for a substantial portion of total Tesla vehicles sold.  

Tesla sold just 102,807 cars last year, and the more expensive Model S sedan and Model X SUV made up most of the sales.

Debt Concerns

Last week, Moody's downgraded Tesla's credit ratings to “negative” from “stable,” pointing directly to Tesla’s Model 3 production woes and worsening financial picture. This downgrade helped illuminate Tesla’s current debt figures.

The company has to cover $1.2 billion of debt that comes due by 2019. On top of that, Tesla’s 2025 bonds were yielding roughly 7.7% last week, while the notes sunk to a low of 86 cents on the dollar.

Tesla will clearly take on new debt in order to boost production of its mass-market Model 3, but it will likely come at far less favorable rates as Tesla continues to bleed cash.

The company’s inability to turn a profit is compounded by the fact that while Tesla and CEO Elon Musk overpromise and under deliver on production, the likes of Ford F, General Motors GM, Toyota TM, Volkswagen VLKAY, and other proven automakers have entered the electric vehicle market.

Worse still, our current Zacks Consensus Estimates are calling for Tesla to post an adjusted loss of $7 per share in its current fiscal year, even as revenues are projected to climb by 60%.

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