Tesla (NASDAQ: TSLA) stock is falling in the pre-market trading Tuesday due to concerns over a subdued outlook for electric vehicle (EV) deliveries amid rising interest rates. Analysts at Wells Fargo suggest that these challenges could persist, exerting downward pressure on the stock price.
Wells Fargo maintained an underweight (sell) rating on Tesla stock, setting a price target of $125. This target suggests a downside of nearly 29% from Tesla’s current share price over the next 12 months.
The analysts at Wells Fargo anticipate a decline of around 130 basis points year-over-year in Tesla’s auto gross margin, excluding credits, due to possible further price cuts and lower volumes.
In addition, Wells Fargo forecasts Tesla’s full-year 2024 deliveries to remain stagnant at around 1.8 million units, indicating no growth from the previous year and trailing about 10% below consensus.
Cautious Outlook from Wells Fargo
The cautious outlook from Wells Fargo stems from observed flattening trends in Tesla’s major markets, including the United States, Europe, and China. With government incentives possibly tapering off, Tesla’s options to increase sales are seen as limited, leaving pricing strategies and model updates as primary avenues for growth.
Wells Fargo highlighted that recent price cuts on Tesla’s high-volume Model 3 and Model Y vehicles have yielded diminishing returns. A 5% price cut in the latter half of 2023 led to only a 3% increase in volume. The analysts estimate that Tesla’s pricing power is dwindling, with roughly 11% remaining before it reaches the breakeven point for EBIT (earnings before interest and taxes).
Wells Fargo foresees a notable year-over-year earnings per share (EPS) drop of around 36% for Tesla in 2024. This forecast factors lower delivery figures, ongoing price cuts, and increased operational expenses. Moreover, the firm expressed concerns about the demand outlook for Tesla’s upcoming Model 2 and the potential impact of utilizing “unboxed” production methods on future margins beyond 2025.
Tesla (NASDAQ: TSLA) Stock Movement
TSLA stock declined 0.32% to close at $175.22 on Monday. The traders had exchanged hands with 81,562,128 (81.56 million) shares compared to the average daily trading volume of 102.35 million.
Edward Cooke is a financial analyst, freelance writer, and editor. He has six years of experience in financial journalism. He has an in-depth understanding of equities markets, tracking major indices and providing real-time analysis on stock price movements, corporate earnings, and market sentiment.
