Tesla (NASDAQ: TSLA) stock tumbled over 4% on Wednesday after Wells Fargo downgraded it to “underweight” and slashed its price target to $125.
Wells Fargo has downgraded Tesla (TSLA) shares from Equal Weight to Underweight, citing concerns over the EV giant’s growth trajectory and pricing strategy. The firm has also lowered Tesla’s price target to $125, down from the previous $200.
Analysts at Wells Fargo have highlighted several challenges that could severely impact Tesla’s earnings per share (EPS) in the coming years. According to their estimates, Tesla’s EPS for 2024 and 2025 could plummet by 32% and 52% below consensus, respectively. The firm points to potential difficulties in the economics of Tesla’s Model 2, aimed at the mass market for compact vehicles.
Moreover, the report reveals alarming statistics about Tesla’s trading value, which is around 58 times the consensus EPS for 2024 and 89 times Wells Fargo’s estimate. This valuation is well above the industry average of 31 times among its main peers, dubbed the ‘Mag 7’. This valuation comes despite Tesla’s stagnant growth in core markets like the European Union and China over the last twelve months, with the United States market having declined since the second quarter.
Wells Fargo has raised red flags over the efficacy of Tesla’s pricing strategy, noting that despite a 5% price reduction in the latter half of the year, there was only a paltry 3% increase in volume on a half-year basis. This strategy has led to a worrying reduction in gross profit per car by around $6,800. Analysts anticipate that Tesla’s vehicle volumes could remain stagnant in 2024 and even dip in 2025.
Tesla (NASDAQ: TSLA) Stock Performance
TSLA stock plunged 4.53% to close at $169.49 on Wednesday. The traders had exchanged hands with 104,272,391 (104.27 million) shares compared to the average daily trading volume of 107.72 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.
