By Senad Karaahmetovic
Guggenheim's analyst downgraded Tesla (NASDAQ:TSLA) to Sell from Neutral as he sees a negative catalyst path for the electric vehicle (EV) stock.
This negative catalyst path can yield underperformance in Tesla shares in both the near and mid-term, the analyst said in a client note. His new price target of $89 per share implies a downside risk of about 28% relative to yesterday’s closing price.
“Heading into a challenging backdrop in FY23, we believe TSLA had to decide whether to sacrifice volume growth or gross margins, and based on pricing actions, the answer appears to be gross margins. This creates a difficult narrative for a stock still trading at ~30x our FY23 estimates, which we now forecast to grow at just a ~10% CAGR over the next 3 years. Finally, TSLA pricing actions taken yesterday are a negative for all OEMs and lowers the overall profit pool, in our view,” the analyst wrote.
Guggenheim highlighted 3 major concerns: 1) Tesla's Q4 margin miss could be “sizable,” 2) FY23 estimates need a reset, and 3) demand KPIs remain weak.
“Additionally, TSLA used prices are declining at ~3x the rate of the market over the last 3 months, which represents another signal of near-term oversupply (at least at prior prices) in the US market. Finally, our analysis shows how sensitive TSLA stock has been to wait time declines (~75% correlation with valuation); we anticipate this sensitivity will shift to price cuts,” the analyst added.
Following the downgrade move to Sell at Guggenheim, Tesla stock now trades over 6% lower in pre-market Friday. Shares were initially down about 3.8% after Tesla implemented massive price cuts for Model 3 and Model Y across Europe and in the U.S., fueling investor concerns about weakening demand.
The Guggenheim analyst highlighted the upcoming Investor Day in March, which “could swing sentiment positive,” with a focus on commentary about a lower-priced model.
“We still think 2025 is the most likely timeframe,” the analyst concluded.
Tesla stock trades 6.2% lower as of 08:10 EST (13:10 GMT).