TSLA Downgraded again ! Worry Now ?

$Tesla Motors(TSLA)$  

Based on US market history, April is one of the best performing months for equities.

Yet this April, Tesla fell by -6.39% to $164.90 per share, after announcing a much weaker than expected Q1 2024 deliveries. 

Actually on 24 Jan 2024, Tesla has suffered a price correction after it’s Q4 2023 post earnings conference call.

When commenting on 2024 EV growth, Mr musk himself issued the warning “may be notably lower”.

With a realized forecast, analysts are now lowering their price targets & expectations — while waiting for Mr musk to pivot out of a "messy quarter." 

Who Said What?  

(1) Guggenheim Securities, Analyst Ronald Jewsikow:

- Recommended - Sell rating.

- Revised price target: from $132 to $122.

- Many factors are weighing on the EV maker — (1) US demand has fallen by 20-25%, (2) China, besieged by slowing demand & intense competition and (3) EU’s Tesla growth is non-existent for 5 quarters.

(2) WedBush, MD of Equity Research Dan Ives:

- Recommended - Outperform rating.

- Revised price target: $300 (unchanged).

- Referred to Q1 delivery as unmitigated disaster.

- This Tesla bull’s assessment is biased. Read with pinch of salt thrown in.  

(3) $Morgan Stanley(MS)$  Global Auto & Share Mobile research, Adam Jonas:

- Did not rate.

- Revised price target: To $100.

- Optimistic about Tesla’s long term prospect on its Cars, Energy products & Autonomous driving.

- Short term, it is a concern in areas of supply chain, regulatory hurdles, competition & how stock price will be affected.  

(4)  $JPMorgan Chase(JPM)$   Analyst Ryan Brinkman:

- Recommended: “Underweight” rating.

- Revised price target price: from $130 to $115.

- Despite Tesla’s -60% fall from its 2021 record high, decline may not be over.

- 3 challenges to maintain its premium valuation — (1) rise of hybrid cars, (2) factory supply disruptions and (3) strong price competition from Chinese automakers — are not going away anytime soon.

- Highly confident both automotive and total company revenue will be negative in Q1.

- Even most bullish investors should take a sentiment check, said Ryan. 

(5) Clean Energy Transition, MD, Per Lekander:

- Did not rate.

- Revised price target: To $14.

- His call is based on estimation that Tesla’s 2024 full-year EPS would be $1.40.

- For a “no growth” stock, valuation should be 10x forward earnings, instead of current 58x.

- Known Tesla bear and short seller since 2020.

- The beginning of the end of Tesla bubble; arguably the biggest stock market bubble in modern history, said him.  

Other Headwinds.

(1) Price Cut & Its Effects.

In 2023, Tesla was the first to slash its Model Y in both US & China, in order to keep sales figures elevated.

It soon spread to other EV models as well. (see below)

This elicited a retaliatory move from Chinese EV makers, that resulted in all parties suffering in 2023 and into 2024.  

As someone many termed a “Visionaire”, Mr musk’s tunnel vision has come back to haunt him now.

This is because the price slashes exercised throughout 2023 and into 2024 has definitely damaged:

- Car sales. A rational buyer will sit & wait for a discount to happen before purchasing. It is a big ticket item.

- Brand equity. Many no longer considered Tesla “luxury” because luxury eg. fashion houses do not discount, let alone undertaking it countless of times in a year. (see above)

- Resale market. Due to frequent price slashes, it affected Tesla EV’s price in Resale market, resulting in little to no demand for a fast-depreciating EV.

- Tesla’s Q1 2024, top line and bottom line. Watch for it on Tue, 23 Apr 2024 after market closed.

(2) Tesla India ?  

Reportedly, Tesla has commenced location recce for a possible (?) Tesla Gigafactory.

Apart from economies of scale and a cheap labour pool, it should have secured “tax-free” levy for its EVs to be sold in India in the interim, while an imminent factory is work in progress.

Guggenheim Securities, Jewsikow :

- Flagged concerns about rumored plans to build a Billion-dollar facility in India.

- The issues of abundant supply, would be even more obvious once the Mexico-based facility becomes operational in early 2026.

- "I guess if this is for the very long term, that makes sense, but I would be personally surprised by anything in the near term about a factory in India becoming more concrete." said he.

(3) Scrapping of Low Costs EV in China.  

On 06 Apr 2024, Reuters cited “3 sources familiar with the matter” that Tesla would abandon the plan to produce low-cost EVs, slated for mid 2025 delivery.

It will pivot to manufacturing self-driving robotaxis instead.

The break-out news angered him and he took to ”X” to refute the news, without backup facts as usual.

Hours later, he tweeted that Robotaxi will be unveiled on 08 Aug 2024.

The fiery reaction from the Billionaire: (I guessed) was because Reuters has:

- “Exposed” the scrapping of the low costs EVs.

- “Stolen” the limelight on Robotaxis announcement from right under his nose.

All these will have ramifications on Tesla’s stock price especially if the scrapping of the low-costs Model 2 holds true.

NY Post highlights:

- In 2020, Mr musk’s talk big to sell 20 million EVs (twice as many as the world’s largest car maker, Toyota).

- Now, with “rumoured” death of Model 2, it’s unclear how he will achieve the goal.

- Self-driving cars have been approved by US (Google’s Waymo) and Chinese regulators for tightly limited, experimental use on public roads only.

- Tesla has not proven it can produce an autonomous car despite years of predictions by Musk that one was just around the corner, an expectation that has partly underpinned Tesla’s soaring valuation.

Will you heed Analysts’ advise or stay put? 

-   Do you think Tesla will further consolidate this week based off the scapping of the low cost EV?

-   Do you think Tesla will recover instead based off its Robotaxis announcement?  

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