(Reuters) – Tesla Inc (TSLA.O) shares closed sharply lower on Tuesday amid analyst skepticism about its Model 3 cars and a news report that said the company had stopped running a brake test on its cars.
Tesla started the day in the red following Wall Street analyst reports pointing to lower-than-expected second-quarter deliveries, and uncertainty over the quality of Model 3 cars and its ability to meet weekly production targets profitably.
The share price tumbled further later in the session after Business Insider reported that Tesla Chief Executive Elon Musk ordered workers to stop putting Model 3 cars through a brake and roll test before leaving the factory.
The test in question was stopped because it test drives every single Model 3 on its test track, which includes “rigorous quality checks, including brake tests,” the company said.
“To be extremely clear, we drive every Model 3 on our test track to verify braking, torque, squeal and rattle. There are no exceptions,” Tesla said.
Tesla closed down 7.2 percent at $310.86, and was on track for the stock’s biggest one-day percentage decline since March 28. Trading volume was 1.3 times the 10-day moving average, during a session that ended three hours earlier than usual ahead of the U.S. Independence Day holiday on July 4.
Shares had shed 2.3 percent on Monday after the company said it had met a long-elusive weekly production target of 5,000 Model 3 cars. It also reaffirmed its financial guidance and committed to boosting output to 6,000 cars per week by late August, but issued second-quarter vehicle deliveries that missed expectations.
Citing Tesla’s lower than expected second-quarter delivery numbers and higher costs, JPMorgan analyst Ryan Brinkman said he now expects a second-quarter loss per share of $2.80, compared with his previous estimate for a $2.45 loss per share.
The achievement of the production milestone suggests “higher costs, given the seemingly inefficient methods in which Tesla is reported to have achieved its production target” including the construction of a temporary assembly line in a tent next to its main factory, Brinkman said.
Brinkman rates Tesla ‘underweight’ with a $180 price target.
Now that Tesla has met its weekly production milestone for the Model 3, the investor debate will shift to profitability, according to a research note from Bernstein analyst Toni Sacconaghi.
He questioned “whether Tesla can really evaluate customer satisfaction yet” given that 11,166 of its Model 3 cars, likely including those manufactured in its tent, were still in transit.
Sacconaghi has a market perform rating on the stock and a price target of $265.
Still, despite the risks, some investors sounded bullish.
Joseph Fath, a portfolio manager at T. Rowe Price – the biggest investor in Tesla besides Musk, according to the latest public data – said Tesla was going through “growing pains.”
He described Tesla’s announcement of 420,000 Model 3 reservations as an “insane” number that no other car maker can boast.
“Are there risks? Absolutely. We factor those in when we size our position,” Fath said.
Reporting By Sinéad Carew; Editing by Bernadette Baum