• Tesla’s stock price took a nosedive this week after the company’s second-quarter earnings fell short of Wall Street expectations.
• The move was a vindication for the company’s biggest bear, who lowered his price target to $US45 for the stock.
• In a note to clients, Gordon Johnson explained the problems he sees with the company’s finances and what other analysts may be missing.
• Visit Business Insider’s homepage for more stories.

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Tesla’s second-quarter losses took many investors by surprise on Wednesday, sending the electric automaker’s stock down as much as 15% and erasing roughly $US5 billion from the company’s market value in the process.

For Gordon Johnson of Vertical Research, however, it was more vindication than surprise.

Johnson has long had the lowest price target for Tesla among sell-side analysts Wall Street, according to a Bloomberg poll. And on Friday he doubled down on that criticism, lowering his prediction even further to $US45 per share, or 80% less than where the stock was trading Friday morning.

“Tesla is currently being valued as a technology company,” he said in a note to clients. “However in reality, it’s a capital intensive, auto company, in an industry defined by cyclicality. We believe as the Street re-rates the company lower as an auto company versus a technology company, it’s price-to-book ratio will trend downwards.”

Read more:
‘You have to move on’: Tesla’s biggest bull explains what the rest of Wall Street is missing – and why Elon Musk sets out to fail on purpose

For his valuation, one that’s significantly lower than other highly bearish analysts at bulge bracket banks like Morgan Stanley or JPMorgan, among others, Johnson is using a price-to-book ratio. Using that measure, Tesla trades at more than six times its book value while most other automotive stocks usually trade at roughly 1.1 times the measure. With that multiple in mind, Tesla should be worth $US45 per share, Johnson says.

“People keep saying ‘look at their revenue growth and value them on a revenue multiple,'” Johnson said. “We believe you’re going to see revenue decline, because in the third quarter you have another $US1,850 cut to the EV incentive which took effect July 1.”

Tesla’s free cash flow came in at $US614 million for the second quarter, the company said in its earnings report. But inside that measure was a more concerning metric: capital expenditures, Johnson says.

“Tesla’s cap-ex in the quarter was a joke,” he said of the $US249.7 million reported line item. “For the past three quarters running, Tesla’s cap-ex has been under its depreciation and amortization, meaning it’s not investing enough to upkeep its equipment. That’s not what growth companies do.”

Competition will also be a problem, as more high-end electric models from automakers like Audi, BMW and others hit the market at a quickening pace, according to Johnson.

“People talk about ‘when are you going to start to see cracks in Tesla’s growth?’ Well you’re already seeing them. It’s just people are ignoring them,” he said.

“When the snowball starts to roll down the hill, we think it’s going to be very precipitous.”

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