Tesla's layoffs mean the company's lead on electric vehicles could be ending, one Wall Street analyst says

Tesla FactoryBenjamin Zhang/Business Insider

  • Tesla is laying off 3,000 workers, the company announced Friday morning.
  • Shares dropped as much as 7% following the news as investors questioned what the restructuring means for the stock.
  • Morgan Stanley said the move could be a sign that Tesla's US market share lead could be reaching a peak, while other analysts added that investors have "more questions than answers."

News of Tesla laying off 3,000 workers on Friday only added to investor worries that demand may be shrinking for its Model 3 sedan.

In an email to employees, CEO Elon Musk said the layoffs were part of an initiative to bring down the cost of producing the sedan, which has only been complicated by the halving of a US federal tax credit previously available to buyers.

Adam Jonas, an analyst at Morgan Stanley, says these factors - including Musk's announcement that Tesla's customer referral program will end on February 1 - could be a sign that the company is nearing a peak.

"During 2019, we expect to see Tesla's share of the US EV market continue to rise before the competition gradually starts chipping away," he said in a note to clients Friday morning. "Tesla's gap-to-competition in terms of market share maybe approaching a peak."

Indeed, as Tesla races to produce its long-awaited base-model Model 3, an increasing number of electric vehicles are set to hit the market soon. In Detroit last week, Cadillac revealed a new electric-concept vehicle, Chinese automaker Geely announced a new electric model that will be sold in the US, and Nissan unveiled an electric-concept featuring all-wheel drive and full autonomous capability.

Even Ford announced an all-electric F-series truck. Meanwhile, Nissan Leaf sales grew 95% last year.

Read more: Elon Musk is pulling out the oldest trick in the executive playbook by laying off 3,000 Tesla workers

To be sure, Tesla accounted for 80% of electric vehicle sales in the US last year, according to data from Inside EV's - and that market is still quickly growing. So until Tesla reports its fourth-quarter results, investors will have more questions than answers.

That's what's behind the stock's 7% drop Friday morning, according to another analyst.

"The knee jerk reaction to this morning's blog post will clearly be negative from the Street's perspective as there will be more questions than answers until the company formally reports earnings/guidance in early February," said Dan Ives, an analyst at Wedbush. He's much more bullish on the company than Jonas, with a $440 price target compared to Morgan Stanley's $291.

"While headwinds are abound on a number of different fronts," Ives continue. "We continue to believe Tesla will be able to emerge from the next 12 to 18 months a stronger, profitable more product diversified (geographically and price points) EV company helping lay the groundwork for Model 3 as a linchpin of growth going forward into 2020 and beyond."

Get the latest Tesla stock price here.

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