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Elon Musk’s Latest Move Means Tesla Is at a ‘Fork in the Road,’ Analyst Says

After Elon Musk published a memo on Friday announcing plans to cut 7% of Tesla’s workforce, one analyst said the electric car maker is at an inflection point.

In a note to investors on Friday, Wedbush analyst Daniel Ives said that Tesla is “entering a fork in the road situation that will ultimately define the future of the company for years to come.” Starting first with the possible negative path, Ives said that he anticipates “pressure” on Tesla demand in 2019 as the company works to increase production on its budget-friendly Model 3. He also believes Tesla will take a hit from the U.S. government’s phase-out of the $7,500 tax credit available to people who bought electric cars through 2018.

Still, Ives believes there are still positive signs in Tesla’s business. He believes that Europe and Asia car sales in 2019 could offset “expected U.S. softness” in demand. He added that Musk appears to be positioning Tesla to be a more “product diversified” company by offering more price points and selling more cars internationally.

In addition to cutting his workforce, Musk said in the memo on Friday that Tesla’s profit shrunk in the fourth quarter compared to the third quarter. Ives believes investors will focus on that more than anything in early trading on Friday, and acknowledged that the Street’s “knee jerk reaction” to Musk’s memo will be negative.

But despite that—and the “headwinds” that Ives believes Tesla faces—he thinks the company will emerge from its “fork in the road” a “stronger, profitable” company.

Ives maintained his outperform rating on Tesla’s stock (TSLA). He has a 12-month price target of $440. Tesla’s shares are down 7% to $323.08 in pre-market trading.