Investing.com -- HSBC has slashed its price target for Tesla (NASDAQ:TSLA) stock to $130 from a previous target of $165, driven by weak fundamentals and increasing competition for the electric vehicle (EV) giant.
The new target implies a downside risk of approximately 50% from the last closing price of $272.06 on March 26.
The bank maintained a “Reduce” rating.
Tesla’s fundamentals have been under pressure for some time. HSBC pointed out that the company’s strategy of cutting list prices, particularly in December 2022, alienated European fleet buyers, who account for around 60% of the new car market.
Furthermore, aging models and limited driving assistance features have posed challenges in China. The refreshed Model 3, launched in Q4 2023, provided only a temporary sales boost, and while the new Model Y may offer some relief, it is unlikely to reverse the longer-term trend.
“Tesla eschews many of the industry norms (holding list prices firm, making regular facelifts and model renewals) and has to date seen only minimal impact, but tougher competition and brand erosion is likely to see the impact of its strategy hurt more,” analysts led by Michael Tyndall said in a note.
Q1 2025 is expected to be particularly weak due to the changeover to the new Model Y, which resulted in “several weeks of lost production in the quarter,” impacting margins due to idle capacity and other ramp-related costs.
HSBC estimates Q1 volumes could be around 385,000 units, 4% below Visible Alpha consensus, and potentially as low as 343,000 units, assuming no boost from the new Model Y.
“We suspect the messaging at Q1 will be that the issues are temporary and the future remains bright. We doubt brand issues will be discussed,” analysts wrote.
The report also raised questions about Tesla’s long-term promises, particularly regarding autonomous driving. The automaker has long promised autonomous vehicles as one of the major drivers of value creation, however, analysts believe that “the timeline for realizing this opportunity could be years away.”
HSBC expects Tesla’s earnings to remain under pressure due to slowing growth and aggressive pricing. Potential upside could come from the launch of new BEV models and increased market enthusiasm for Tesla’s AI and related projects, the bank said.