Tesla (NASDAQ: TSLA) stock traded lower in the pre-market trading Thursday as Barclays slashed its price target amid anticipation of a disappointing Q1 earnings call.
Barclays, a leading financial services company, has cut its stock target for Tesla (TSLA) just ahead of its upcoming first-quarter earnings report. The downgrade comes amidst a slowdown in electric vehicle (EV) demand and broader economic uncertainties.
In a note issued on Wednesday, Barclays slashed its Tesla stock (NASDAQ: TSLA) price target by 20% to $180 from $225, citing concerns about the company’s upcoming first-quarter earnings report scheduled for April 23. The Barclays analyst, Dan Levy, argued that the report could be a negative catalyst for the stock.
This forecast follows a series of unfortunate events for Tesla, including a significant miss in first-quarter vehicle deliveries, reports of discontinuation of the low-cost Model 2, and recent layoffs of 10% of its global workforce along with the departure of two key executives.
Tesla (TSLA): Factors Behind the Downgrade
Dan Levy, an analyst at Barclays, expects Tesla to fall short of Wall Street estimates in its upcoming earnings report, particularly anticipating disappointment in gross margins. He also expressed skepticism towards CEO Elon Musk’s recent decision to focus on a fully self-driving robotaxi fleet, suggesting that investors may not react favorably to this strategy shift.
Levy said,
“Plans for Model 2 will likely get the most attention, but don’t expect a satisfying answer.”
The emphasis on Tesla ought to center on its capacity to expand vehicle deliveries within the fiercely competitive EV market, thereby boosting profit margins. However, it seems unlikely that this will be the focal point of the earnings call.
Levy explained,
“Tesla’s deeply challenged near-term fundamentals are taking the backseat to a much larger issue, as Tesla is facing an investment thesis pivot. Specifically, the central focus of the call will be to understand Tesla’s forward strategy as Tesla is seemingly pivoting away from its plans to produce a mass market vehicle (Model 2), and is instead focusing its efforts on autonomous driving.”
Levy suggests that if Tesla does indeed shift its focus from a mass-market vehicle to a fully self-driving robotaxi, it would be a “clear net negative for the Tesla investment thesis.”
Levy added,
“It casts significant uncertainty on the path ahead for Tesla, making the success of the stock dependent on bets with seemingly binary outcomes. Indeed, we are hard-pressed to think of any other precedent of a company of Tesla’s size basing its path of success on such binary bets.”
Tesla (TSLA) Earnings Call: Negative Catalysts
Levy highlighted three negative catalysts he expects to hear during Tesla’s earnings call:
- a first-quarter miss with below-consensus gross margins
- potential negative free cash flow marking the first instance since 1Q20
- unanswered questions regarding Tesla’s strategic direction leading to investor uncertainty.
Levy reaffirmed his stance of “Equal Weight” on Tesla, which is synonymous with a “Hold” recommendation in the parlance of Wall Street.
Tesla (NASDAQ: TSLA) Stock Reaction
At the time of publication, TSLA stock trades at $155.45, marking a 1.06% decrease compared to the previous trading session. Traders have exchanged 81,971,329 (81.97 million) shares, which is lower than the average daily trading volume of 101.93 million.
