Berenberg analyst Adrian Yanoshik turned bullish on Tesla Inc. on Monday, citing improved valuation as concerns that Chief Executive Elon Musk will be distracted by his Twitter purchase have already been priced into the stock.
At the same time, Yanoshik backed away from his bullish call on General Motors Co. $(GM)$, a day before the auto maker reports fourth-quarter results, saying he was looking for better levels to buy the stock as momentum has faded.
Yanoshik raised his rating on Tesla to buy, while cutting his stock price target to $200 from $255. His new price target implied about 12% upside from current levels.
"Tesla's valuation has sufficiently returned to earth to turn us positive on the shares," Yanoshik wrote in a note to clients. "Technical pressure from CEO Elon Musk's Twitter purchase and China disruption risks now appear to be loaded into the share price, while we think Tesla's 1 March investor day offers near-term catalyst potential."
The electric vehicle maker's stock $(TSLA)$ slipped 0.2% in premarket trading, but bounced from earlier losses of as much as 2.5%. While it has rocketed 64.6% since closing at a 2 1/2-year low of $108.10 on Jan. 3, the stock was still down 22.2% over the past three months while the S&P 500 index has gained 4.3%.
Yanoshik said Tesla's price cuts on EVs, which had put pressure on the stock when announced, represent an "investment in growth," which he believes reflects the company's cost-leadership strategy.
He also believes the expansion of production of battery cells offers Tesla further "economies of scale," that would help it better compete with EV rivals, even as the ramping up of in-house production remains challenging.
"Tesla, in our view, could take market shares at a gross margin that exceeds 25%," Yanoshik wrote. "After a price-led blip in 2023, we expect margins to recover as the production mix shifts away from Fremont, California, which suffers from high labour costs."
In the fourth quarter, Tesla reported gross profit margin of 23.8%, down from 27.4% in the same period a year ago.
Meanwhile, Yanoshik downgraded GM to hold, and trimmed his stock price target to $41 from $45. The stock slumped 1.4% in premarket trading.
He said that while a number of new EV model releases provide GM with order momentum, the company's platform approach to production "requires deeper supply-chain integration that may take longer to execute than some of its peers."
And while GM's self-driving EV business, GM Cruise, may offer long-term upside to valuation, Yanoshik believes that unit is less likely to be a catalyst for the stock in the year ahead, as investor appetite for autonomous-driving companies has diminished of late.
GM's stock has lost 2.3% over the past three months through Friday.