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Tesla stock drops as Wells Fargo cuts rating to sell, sees 30% downside risk

Published 03/13/2024, 05:40 AM
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Tesla (NASDAQ:TSLA) stock fell 1.5% in early New York trading Wednesday after Wells Fargo downgraded the rating to Underweight (equivalent to sell) from Equal Weight. Analysts called Tesla “a growth company with no growth.”

The analysts also cut the price target by as much as $75 to $125 per share, which indicates a near 30% downside risk based on Tuesday’s close for Tesla stock price of $177.54.

Wells Fargo says Tesla “ain't looking so 'Magnificent’” at the moment with shares down as much as 28.5% year-to-date, compared to the S&P 500 +8.5%.

The downgrade move comes as analysts “see downside risk to volume as price cuts are having a diminishing impact.”

“We expect volumes to be flat in 2024 & down in 2025. In the wake of px cuts are lower lease residuals, disgruntled customers & the possible loss of the luxury brand premium,” analysts wrote in a note.

“We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions.”

Wells Fargo’s 2024 & 2025 earnings estimates are 32% & 52% below consensus, which is striking for the stock as large as Tesla. 

“While an EV & battery tech leader, TSLA screens poorly relative to Mag 7 peers, trading at 58x PE vs. peers at 31x. Yet, TSLA has a similar outlook for consensus 3-year EPS growth (19% vs. 23% Mag 7 avg).”

The analysts also discussed Tesla’s next major launch, which is expected to be next-gen compact SUV – Model 2. This electric vehicle (EV) model is expected to arrive in the second half of 2025.

“Model 2 economics are likely tough as a mass market compact vehicle,” analysts said.

By Senad Karaahmetovic

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