Shares of Tesla Inc. (NASDAQ: TSLA) continued to erode on Thursday after Barclays slashed its price target for the struggling automaker, citing declining demand for the Model 3 vehicle. Rising competition and massive capital constraints give investors every reason to be bearish on the stock.

 

Share Price Plummets

Tesla’s share price fell on Thursday to its lowest level in two-and-a-half years, extending a massive selloff that began over five months ago.

TSLA bottomed at $187.02, where it was down 1.5%. The stock hasn’t been this low since November 2016.

Tesla’s Perilous Path

Tesla Share Price 3 Year - May 30 2019

Source: Yahoo Finance

Barclays, the English multinational investment bank, has lowered its price target for the stock all the way down to $152 from $192 previously. In a recent note to clients, the bank said the Model 3 car is suffering from stagnating demand in the United States.

“Model 3 demand is stagnating in the U.S., the company still doesn’t have a path to significant auto profitability and solar storage installations have declined sequentially over the past two quarters,” analyst Brian Johnson wrote.

Barclays’ price target means TSLA is due to fall another 21% from current levels. The stock has already fallen 43% this year.

 

Cash Burn and a Crowded Market

Tesla is expected to face huge competition from traditional auto manufacturers that can afford to give up short-term profitability for long-term market share.

Tesla has dominated the headlines in recent weeks after a leaked email from CEO Elon Musk revealed that “hardcore” cost-cutting measures were needed at the struggling automaker. The company-wide memo urged employees to control spending by any means necessary to ensure that the business remains financially sustainable.

“It is important to bear in mind that we lost $700 million in the first quarter this year, which is over $200 million per month,” Musk wrote in the email, according to CNBC. “Investors nonetheless were supportive of our efforts and agreed to give us $2.4 billion (our net proceeds) to show that we can be financially sustainable.”

As The Wall Street Journal reported earlier this month, Tesla is looking to raise as much as $2.3 billion to cover its expenses. The company is looking to raise more than $600 million from a public offering of about 2.7 million shares, as well as $1.35 billion through a bond sale.

Beyond Tesla’s obvious cash burn is growing concern that the company is quickly losing its leadership pace of the electric vehicle market. With roughly 200 electric cars coming onto the market by 2021, Tesla is expected to face huge competition from traditional auto manufacturers that can afford to give up short-term profitability for long-term market share.

Norway, the world’s largest electric car market, provides a good case study of what Tesla can expect moving forward. As of May 23, Tesla owned roughly 20% of the country’s electric car market in terms of overall sales. The Tesla Model 3 was the second-most popular car behind the Volkswagen eGolf. More than 20 competitors giving Tesla a run for its money.

Beyond the Model 3, Tesla’s fleet has barely made a dent in the Norwegian market.

 

Conclusion

Tesla’s outlook is looking grimmer by the day, but all hope is not lost. If the company can address its dwindling cash reserves, it can tap into a massively growing market. The International Energy Agency (IEA) says there will be 125 million electric vehicles on the road by 2030, up from just three million in 2017. In an ideal scenario, the 2030 figure could be as high as 220 million. Clearly, there’s still plenty of room left for Tesla.

Disclaimer: Author holds no investment position in Tesla Inc. at the time of writing.