Tesla stock
TESLA INC
-3.41%
closure:0
opening:178.05
High:179.77
low:168.3
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rose too quickly this year based on many uncertainties surrounding the EV maker’s business, argues JP Morgan analyst Ryan Brinkman. “Tesla’s softer trend and adjusted gross margins are below consensus and come ahead of the impact of large price cuts that will be felt mostly starting in the first quarter,” Brinkman said. “As such, we see the future of the stock negatively and estimate that profit expectations in the market will decline.”
Brinkman reiterated an ‘underweight’ (equivalent to sell) rating for Tesla shares. His target price of $120 per share predicts a 32% drop from current levels. Tesla shares are down 3% trading now but the stock is up about 60% so far in 2023.
“While both technology and execution risk appear significantly less than once feared, expansion into higher volume segments with lower price points appears to involve greater risk relative to demand, execution and competition,” Brinkman added. “In the meantime, the valuation appears to be pricing in upside related to expansion into mass market segments well beyond our volume projections for the Model 3.” The bearish note on Tesla comes after the company reported a mixed — at best — outlook for the fourth quarter and full year last week.
Tesla recorded in the fourth quarter of 2022 an adjusted profit of $1.19 per share on revenues of $24.32 billion – far exceeding market expectations, which led to an 11% jump in the stock in trading the next day. Tesla’s gross profit margin in the fourth quarter came in at 23.8%, less than estimates of 25.4%. The car’s gross profit rate reached 25.9%, compared to analyst estimates of 28.4%.
During the earnings call with investors, Tesla CEO Elon Musk did his best to sound enthusiastic about Tesla’s business. He also addressed demand concerns, stating, “So far in January, we’ve seen the strongest orders to date ever in our history.” But at the same time, he warned of a “severe” recession this year.
The economic warning appears to have been included in Tesla’s 2023 volume growth forecast of 38%, which fell short of a long-term target of 50%. Not everyone on the Street is in Brinkman’s camp on Tesla, however: Bernberg analyst Adrian Januschik upgraded his rating on Tesla from “hold” to “sell,” citing “misplaced” pricing concerns.
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