A Few Things Even The Tesla Bulls Still Worry About

Bernstein in a note released Monday delved on the disruptive potential of Tesla Inc TSLA. The firm is also very bullish on the long-term growth of the market for electric vehicles, which Tesla pioneered. That said, the firm expressed uneasiness over the stock's stellar run up, its rate of cash burn and the roadmap toward profitability.

As such, the firm has a Market Perform rating on the shares of Tesla and a $265 price target. Citing the risk/reward dynamic, given that much of the potential upside is fully baked into the stock price, the firm said it does not encourage investors to chase the stock at current levels.

At time of writing, shares of Tesla were down 2.40 percent at $348.22.

Electric Vehicles In The Fast Lane

Analyst Bhavtosh Vajpayee said for the bulls, Tesla stock price reflects CEO Elon Musk's promise of a wholly electrified future, where all personal transportation is emission-free and autonomous, and solar energy powers the world. The analyst concurs with the bulls, as he is bullish on the long-term growth of the market for electric vehicles.

The analyst feels EVs will become the dominant standard for personal transportation. The analyst's bullish take on EV adoption is premised on Tesla acting as a market catalyst, government policy of offering incentives, cost economics and future technological developments (see Vajpayee's track record here).

Competitively And Structurally Advantaged

Apart from being a disruptor, Bernstein said Tesla benefits from several distinct competitive advantages versus traditional auto OEMs. The competitive advantages include better scale in battery costs, a more extensive charger network, and a more developed product lineup.

Meanwhile, the firm said the company has structural advantages such as an exceptionally powerful brand, and a differentiated, direct distribution network.

That said, the firm's comfort level with Tesla's outperformance does not pervade into all spheres.

See also: Automakers Shift Lanes As Disruptive Technologies Take Over

Breathtaking Rally

Bernstein noted sentiment toward Tesla stock is at an all-time high, with the stock having run up substantially in anticipation of the mass market Model 3. In the year-to-date period, the stock has been up 63.06 percent.

The firm is of the view that any near-term missteps in Tesla's execution of Model 3 could cause a major retreat in stock price.

Ample evidence for this deduction came Monday, as the stock took a hit amid worries concerning Model 3 production hiccups. Musk took to Twitter last weekend to suggest that production slowed.

The Model 3 body line slowed down to 1/10th speed https://t.co/VVTthqFzF7

— Elon Musk (@elonmusk) October 8, 2017

Burning Cash At Alarming Rate

The firm also noted that the company would continue to burn billions of dollars of cash for the foreseeable future. In its recent second quarter, the company's free cash flow plummeted to a negative $1.2 billion from a negative $622.4 million in the year-ago quarter.

This is understandable, given Tesla's quest to innovate and invest deep in cutting-edge technology related to electric vehicles and solar energy.

Profitability Still A Conundrum

The firm said it isn't able to visualize how the company can hit its gross margin targets, especially in the near term. This, according to the firm, will likely raise doubts about exactly when the company will achieve profitability and mitigate its rapid cash burn.

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