Wall Street is completely confused by Tesla

Hollis Johnson/Business Insider

The Tesla Model 3.

• Nomura's Tesla bull, Romit Shah, cut his target price to $420 from $500.
• He also thinks Tesla has a big lead on the competition.
• Tesla doesn't have a big lead on the competition.

Tesla has been clobbered in the markets, down over 25% over the past month.

For some, like Morgan Stanley analyst Adam Jonas, a stock price around $250 is a buying opportunity. For others, like Nomura's Romit Shah, it's an occasion for a target-price trim.

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"We remain constructive on TSLA, believing that much of the recent weakness is based on concerns (accounting, insolvency risk, and passenger safety) that are largely without merit," he wrote in a research note published Thursday, knocking $80 off his previous price target of $500, taking Nomura to $420.

"At the same time, we see significant momentum for alternative energy vehicles, an inferior competitive landscape and continued progress on Model 3 production driving more than 70% top-line growth this year, easily one of the fastest ever by a multibillion- dollar company. As such, we remain Buy-rated on TSLA."

Shah's move is logical: Tesla looks more like it's going to $200 than $400 at the moment, amid numerous challenges ranging from a Moody's credit downgrade to ongoing struggles with Model 3 production to another big loss for the first quarter.

An "inferior competitive landscape?"

GM

A Chevy Bolt being assembled.

Shah's argument about "an inferior competitive landscape" makes no sense, however, although it's of a piece with other Tesla mega-bulls, such as Loup Ventures' Gene Munster, who seems to think that Tesla can basically sell 11 million cars in the US alone.

For perspective, that's more than General Motors sold worldwide last year. For more perspective, Tesla sold just over 100,000 globally in 2017.

"We believe that competition remains years behind, and in some cases appears to be moving backwards," Shah wrote, going on to cite GM's request to revisit US emissions and fuel-economy standards as a baffling commitment to the internal-combustion engine in a worldwide market where the company sold about ... 10 million of those in 2017.

For what it's worth, GM beat the Tesla Model 3 to market by a country mile with the Chevy Bolt, a $37,500 all-electric vehicle that hit the streets in October 2016 and sold almost 25,000 units in 2017. GM is also using the Bolt as the platform for its Cruise self-driving division. Earlier this month, GM announced that it would increase production.

Wall Street has always been pretty confused about Tesla. Morgan Stanley's Jonas is a car guy and gets the business, so his bullishness can be chalked up more to far-reaching thinking than knee-jerk bullishness. More bearish analysts are focused on Tesla's weak fundamentals.

The mistake of covering Tesla like a tech company

Joe Skipper/Reuters

Tesla CEO Elon Musk.

Shah is a different case, in that he covers Tesla more explicitly as a tech company. He doesn't have any other carmakers in his coverage area. But his bullishness is typical of how tech investors view Tesla: they argue that growth is all that matters and expect the company to at some point achieve a monopoly position in an industry that's among the world's most competitive.

GM has already shown that a carmaker can quickly eliminate Tesla's competitive advantage. Shah references the new Jaguar I-PACE in his note, writing that "[d]espite its competitive price, we see a few fundamental issues with the overall competitiveness of I-Pace."

He lists the problems, including lack of profits, nothing new on the self-driving front, and battery supplies. None of this addresses the core challenge for Tesla, which is that the I-PACE is a very nice car that's significantly cheaper than the Tesla Model S and Model X.

In doing so, Shah makes the classic error of the tech analyst looking at a car company and failing to understand the value of segmentation. The I-PACE isn't really competing with Tesla's vehicles - instead, Jaguar is moving to occupy a segment where Tesla can't play.

Get the latest Tesla stock price here.