- Tesla shares slipped early Thursday after Barclays cut its price target for a second time this year.
- The firm said Tesla is set to "stall," pointing to issues over demand and the likelihood CEO Elon Musk's full self-driving capabilities actually pan out.
- Watch Tesla trade live.
Barclays on Thursday became the latest Wall Street firm to lower its expectations for Tesla, citing concerns over underlying demand, profitability, and the skepticism that's met CEO Elon Musk's full self-driving plans.
"Model 3 demand is stagnating in the US, 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.
"While Mr. Musk is pivoting to the remaining 'hyberbull' full robotaxi scenario, his efforts to spring excitement around Tesla's full self-driving capabilities was broadly met with the appropriate skepticism," he added.
It's these developments, amounting to the higher likelihood of a "stall" in Tesla's progress, that led Johnson to lower his price target to $150 from $192. That new target implies a 21% drop from current levels.
In its report, Barclays picks apart a theme that's enveloped the cult of Tesla for years. The automaker has long been seen as a compelling growth story that investors have eagerly bought into, setting aside typical fundamental metrics like profitability and valuation for the chance at investing in a piece of the future.
Read more: Tesla is 'waking up' from its Model 3 dream
Johnson, who maintained his "neutral" rating, expects investors to increasingly focus on fundamental issues that have cropped up in recent months, slamming the stock.
"We expect more investors to gravitate back to Tesla's near-term fundamentals of demand, profitability, and cash generation, areas that are now more exposed as the blue pill thesis washes away," he wrote, referencing the "blue pill" in the film "The Matrix" that allows a character, Neo, to see the universe in a state of blissful unawareness.
In contrast, the "red pill" would allow Neo to see the universe realistically.
"What's left of the blue pill?" Johnson wonders, adding the "recent price action reflects shrinking confidence in the blue pill upsides, and a higher likelihood that Tesla is at best a niche automaker."
"On Tesla, we think many investors had initially taken the blue pill, while we remained stubbornly in the red pill camp," he said.
In recent months, even as Tesla unveiled both its long-awaited lower-cost Model 3 and Model Y crossover SUV, and executed a capital raise applauded by analysts, shares have plummeted to 2 1/2-year low.
Wall Street's reaction has been swift and severe, with several critical reports from equity analysts emerging last week.
Morgan Stanley lowered its bear-case price target to just $10 a share after having cut its base-case target four times this year. Additionally, Bank of America Merrill Lynch said in a report that Tesla's fundamentals are "deteriorating, specifically deliveries/production that are starting to stall."
And last month the Wedbush analyst Dan Ives, a former Tesla bull, lowered his rating and said he could no longer "look investors in the eye" and recommend the stock at current levels.
The buy-side's confidence in Tesla also appears shaken. Asset management giant T. Rowe Price, which not long ago was Tesla's largest institutional shareholder, in the first quarter dumped most of its stake after already having reduced its position late last year.
Tesla is down 42% this year, trading near $192 a share.
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