Al Root
Tesla stock has been controversial this year, and will likely remain so in 2024. Bulls continue to believe the stock will rise as sales grow and new products hit the market. Bears will keep worrying about valuation and competition.
A longtime bear sees things getting more difficult for the electric-vehicle leader in 2024.
Bernstein analyst Toni Sacconaghi has rated Tesla stock Sell since July 2020 -- a period during which the shares have risen about 150%. Back in 2020, he downgraded the stock from Hold, when it was trading right around $100 a share. His price target at the time was $60 a share -- it has since risen to $150 currently.
His bearish stance hasn't changed, even as the stock has climbed. Tesla shares changed hands around $244 Friday afternoon.
"Tesla continues to have a demand issue," wrote Sacconaghi in a report this week that was attached to a conference call for Bernstein clients. He says Tesla's product lineup is too narrow, expensive, and saturated.
Tesla is considered a luxury brand and dominates U.S. luxury EV sales, accounting for about 60% of the total in the third quarter. Tesla's market share of all luxury car sales, be they gas or electric, is formidable too. It accounted for almost 20% of third-quarter sales.
That's impressive, but that's the saturation Sacconaghi is worried about. Tesla cut prices aggressively in 2023 to support demand amid rising interest rates. He predicts Tesla will cut prices again in 2024 to keep stimulating demand.
A lower-priced EV would help, but he doesn't see that arriving until 2026.
"We believe that Tesla will disappoint on both units [and] revenues and earnings per share in 2024, and are notably below consensus," added the analyst. He projects a 2024 earnings of $2.59 a share. The Wall Street consensus number is $3.87 a share.
The consensus earnings estimate leaves Tesla stock trading for about 63 times estimated 2024 numbers. In comparison, the shares are trading at 94 times Sacconaghi's lower EPS estimate, while his price target of $150 is about 60 times his number.
He "isn't wrong that 2023 and 2024 earnings estimates were slashed about 40% during 2023," says Future Fund Active ETF co-founder and Tesla shareholder Gary Black. He, however, doesn't believe 2024 will turn out that badly. "Tesla should continue to rally as investors get more conviction that Tesla automotive gross [profit] margins have bottomed."
Tesla's automotive gross profit margin, excluding regulatory credit sales, hit about 16% in the third quarter, down about 10 percentage points year over year.
What's more, Black sees Cybertruck, which was first delivered in November, helping Tesla's brand, which could result in more Tesla Model 3 and Model Y sales. Sacconaghi, meanwhile, calls the Cybertruck a "niche product."
Sacconaghi sees Tesla delivering 2.1 million units in 2024. The Wall Street consensus is 2.2 million. Black projects 2.4 million cars sold.
The bulls and bears clearly rarely agree.
That also shows up in price targets. The top target prices on Wall Street average about $350 a share. The low price targets average about $100. The $250 bull-bear spread is more than 100% of the current price. That bull-bear spread for Apple is about 50%.
Sacconaghi is more bearish than Barron's. We recommended Tesla stock in January 2023, believing shares were too beaten up amid Elon Musk's purchase of X, the former Twitter, and Tesla vehicle price cuts. Shares have done well since then, more than doubling.
Tesla stock isn't in the low-$100s anymore, which gives us some pause about adding to positions. But Barron's wouldn't short Tesla stock -- a bearish bet in which an investor borrows and then sells shares. They are the largest producer of a growing technology, and they are profitable. Tesla also has other ways to generate value including self-driving cars and utility-scale battery storage applications. At worst, we are happy to keep a "market weight" position in Tesla stock. Tesla accounts for roughly 2% of the S&P 500.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 08, 2023 14:51 ET (19:51 GMT)
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