Mar 13 2024: In early New York trading on Wednesday, Tesla (NASDAQ:TSLA) witnessed a 1.5% drop following Wells Fargo’s decision to downgrade its rating from Equal Weight to Underweight, akin to a sell recommendation. Analysts characterized Tesla as “a growth company with no growth.”
The analysts also revised the price target downwards by up to $75 to $125 per share, signaling a potential downside risk of nearly 30% based on Tesla’s closing price of $177.54 on Tuesday.
Wells Fargo remarked that Tesla is currently not exhibiting its previously perceived “Magnificent” status, given its shares have declined by as much as 28.5% year-to-date, in stark contrast to the S&P 500’s +8.5% performance.
The downgrade aligns with analysts’ apprehensions about potential volume declines due to diminishing effects of price cuts.
“We anticipate stagnant volumes in 2024 and a decrease in 2025. Price reductions may lead to lower lease residuals, discontent among customers, and the risk of dilution of the luxury brand premium,” the analysts noted in a statement.
They further anticipate challenges arising from disappointing delivery figures and continued price reductions, which are likely to result in negative revisions to earnings per share (EPS).
Wells Fargo’s earnings estimates for 2024 and 2025 are notably 32% and 52% below consensus, a significant deviation for a company of Tesla’s magnitude.
“While Tesla holds a leadership position in EV and battery technology, its valuation metrics appear unattractive compared to its peer group, trading at a PE ratio of 58x versus peers at 31x. However, Tesla’s projected three-year EPS growth is similar to the average of its peers, standing at 19% versus 23% for the average of the top 7 competitors,” the analysts elaborated.
Additionally, the analysts addressed Tesla’s forthcoming major launch, the next-generation compact SUV known as Model 2, expected to debut in the latter half of 2025.
“Model 2 is likely to face challenging economics as a mass-market compact vehicle,” the analysts opined.
Authored by Senad Karaahmetovic.