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Dip in Tesla's customer deposits triggers worries over orders

Published 05/04/2017, 03:00 PM
Updated 05/04/2017, 03:10 PM
© Reuters. A prototype of the Tesla Model 3 is on display in front of the factory during a media tour of the Tesla Gigafactory which will produce batteries for the electric carmaker in Sparks
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(Reuters) - A 7 percent drop in Tesla Inc's (O:TSLA) customer deposits in its latest quarter raised concerns about future sales at the U.S. luxury electric-car maker.

The company's shares were down nearly 5 percent at $295.55 in afternoon trading on Thursday, on track for their third straight day of decline.

Customer deposits fell to $616.4 million at the end of the first quarter, from $663.9 million in the preceding quarter.

Tesla Chief Executive Officer Elon Musk repeatedly emphasized the difference between the Model 3 and the Model S, in an earnings call on Thursday.

The company had seen orders of the Model S hurt by confusion among customers, who were under the impression that the $35,000 Model 3 was an upgrade from the Model S, Musk said.

The Model S lists at about double the starting price of the Model 3.

Tesla, which has faced production challenges in the past, is banking on the mass-market Model 3, which could finally allow the company to stem its free-wheeling cash burn and turn a profit.

Pacific Crest Securities analyst Brad Erickson termed Tesla's communication regarding the misconception between the two cars confusing.

"Either Model S demand is getting hit by a pause in front of the Model 3 (less negative) or the Model 3 reservation list is inflated with orders that will not convert when the true identity of the car is discovered (more negative)," Erickson wrote in a note.

Some analysts were also worried about the prospect of Tesla hindering the sales of the higher-margin Model S.

Barclays (LON:BARC) analyst Brian Johnson said the drop off in customer deposits, along with the commentary around the Model S, might indicate an Osborne Effect in Model S and Model X orders.

Johnson was referring to the Osborne Computer Corp that went bankrupt in 1985, after the company damaged its own sales by announcing a new computer before it was ready.

"We continue to be cautious relative to the potential for a slower-than-guided start to Model 3 assembly, and newly believe that the potential for Model 3 pre-orders cancellations may increasingly become a point of investor concern," J.P. Morgan Securities analyst Ryan Brinkman said.

As of Wednesday's close, Tesla was the most valuable U.S. carmaker ahead of Detroit heavyweights General Motors Co (N:GM) and Ford Motor Co (N:F).

© Reuters. A prototype of the Tesla Model 3 is on display in front of the factory during a media tour of the Tesla Gigafactory which will produce batteries for the electric carmaker in Sparks

Through Wednesday's close, Tesla's stock had risen more than 45 percent this year.

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