Wall Street is Largely Bearish on The Tesla Model Y

The Tesla Model Y finally arrived last week amid much hype and anticipation for Tesla’s latest product. But, just as there are people who were excited about the Model Y’s arrival, there, too, are those who weren’t very impressed by Tesla’s new ride. Count Wall Street in the latter group as Tesla’s shares dropped by almost five percent at the market’s close last Friday, sparking concerns that there remains a lot of questions regarding Tesla’s production future and the prospect of the Model Y competing against the Model 3.

A Big Group of People That Matter are Largely Unimpressed with the 2020 Tesla Model Y

There’s no disputing that the début of the Tesla Model Y has a lot of people talking about the future of Tesla as a company. A lot of people are happy with what they saw when the Model Y debuted last week. These are the same folks who are probably excited to buy one, and we can’t blame them. For all of its warts, the Model Y is in a prime position to take ownership of the electric crossover market. There aren’t that many competitors in the fold yet, and the Model Y comes with the cache of the Tesla name.

Unfortunately for Tesla, Wall Street isn’t a part of that group. Traders, brokers, and analysts were left unimpressed after the Model Y’s debut, and the numbers proved as much as Tesla’s shares dropped close to five percent at the end of trading last Friday, March 15. Different analysts had different reasons for their bearish reactions to Tesla’s future.

Deutsche Bank analyst Emmanuel Rosner said that the Model Y’s launch event was underwhelming “with no major surprises.” That’s a nod to Tesla’s typically bombastic product launches in the past. The Model Y’s debut, however, had very little sizzle to match anything that Tesla has done in earlier years. Rosner’s sentiments were echoed by a number of other analysts, including Cowen analyst Jeff Osborne, who used the same terms — “underwhelming” and “no surprises” — in his own note to investors. Osborne also added that the event’s lack of depth didn’t sit well with a lot of investors, most of whom were looking for news regarding facelift/updates to the Model S and Model X lines, as well as new software and details on how Tesla’s first quarter numbers are going. Osborne’s note and recommendation also included harsh words for the Model Y’s appeal, saying that “we do not see the new Model Y igniting higher demand or enthusiasm for the Tesla brand.”

Morgan Stanley analyst Adam Jones shared that sentiment in his own note to investors. According to Jones, the Model Y would be “likely to cannibalize the Model 3. The Model Y offers substantially greater space, nearly identical performance, and nearly as much range as a Model 3, and it has two extra seats in the 3rd row, which is a very big deal, especially for the US market.”

For his part, Bernstein analyst Toni Sacconaghi’s biggest concern is the Model Y’s production timeline. Just like with the Model 3, Tesla is set to offer higher-trim versions of the Model Y first — likely around the end of 2020 — before rolling out the more affordable versions of the electric crossover sometime in 2021. This strategy somewhat explains why Tesla rushed to introduce the lower-spec Model 3 before the Model Y arrived. Doing so created a distinctive pricing differentiation between the two models, even though the Model Y largely uses parts and equipment straight from the Model 3. While there’s nothing wrong with that approach — it saves Tesla a lot of time and money — there’s something to be said for a vehicle that’s packaged as a crossover that doesn’t have the typical features associated with a crossover. There’s a reason why people thought the Model Y looked like a raised hatchback.

Baird and Oppenheimer are two firms that fall in this category. For Baird, the Model Y’s debut and solid performance specs help position the Model Y “in the attractive and growing market of premium and luxury SUVs.” The production timetable also fell in line with its own expectations. Together, these two reasons helped the Model Y receive an outperform rating from, as well as a $465 price target for Tesla’s shares in the coming weeks or months. In the same breath, Oppenheimer believes that the “timing, specs, and price range” are largely in line with investor expectations.

Obviously, none of these predictions should affect Tesla and its own timetable for the Model Y. Tesla isn’t beholden to anybody when it comes to its plans for its new electric crossover. But if it wants to prove people wrong, it’s going to need to do a better job at streamlining the Model Y’s production process, at least compared to what happened with the Model 3’s own production timetable.

If Elon Musk and company can do that, they’re going to go a long way in shutting a lot of people up.