Bernstein analyst Toni Sacconaghi maintained Tesla Inc (NASDAQ: TSLA) with an Underperform rating and lowered the price target from $150 to $120.
The analyst said that sentiment towards Tesla has become increasingly bearish, leading to a revision of production and delivery estimates ahead of the April 2 announcement.
Notably, weakened demand in Europe and China and decelerated EV adoption in these regions and the U.S. have contributed to these adjustments.
Additionally, production delays for the Highland Model 3 in Fremont have prompted a decrease in volume forecasts from 490k to 426k for the first quarter and from 2.12 million to 1.98 million for the year, below consensus expectations.
Consequently, the GAAP EPS estimate has been lowered from $2.31 to $2.06, contrasting with a consensus of $2.62. For fiscal 2025, estimates predict 2.18 million units and an EPS of $2.22 versus a consensus of $3.69.
These revisions are partly due to soft demand in key markets and challenges in ramping up the Highland Model 3 production.
This suggests the refresh needs to be revised to boost demand significantly, as per Sacconaghi.
As a result, Tesla's stock performance has suffered, with a 31% decline year-to-date, lagging behind the S&P and other major tech stocks. Despite this, Tesla's valuation remains high compared to that of traditional auto manufacturers, driven by unique growth expectations.
Comparisons to BYD reveal a stark contrast in valuation and economic fundamentals, with Tesla's market cap substantially exceeding that of BYD despite similar sizes in terms of volumes and revenue, the analyst stated.
Furthermore, Tesla's margins are declining, and its growth rate aligns more closely with traditional auto companies like Toyota and Honda than with high-growth firms.
Tesla's valuation also appears elevated compared to large-cap tech companies, raising questions about its premium pricing given the competitive and regulatory challenges it faces, Sacconaghi stated.
Despite these concerns, Tesla's ambitious targets for its energy storage business and its potential in other areas like Full Self-Driving (FSD) and robotaxis suggest future growth areas.
However, he added that the sustainability of its high valuation in light of these challenges remains a crucial question for investors and analysts alike.
The stock has lost 31% year-to-date. Investors can gain exposure to the stock via Tidal ETF Trust II The Meet Kevin Pricing Power ETF (NASDAQ: PP) and Vanguard Consumer Discretion ETF (NASDAQ: VCR).
Price Action: TSLA shares traded higher by 4.29% at $180.10 on the last check Tuesday.