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Tesla stock hits 15-month low in premarket after Deutsche Bank downgrade

Published 04/18/2024, 07:22 AM
© Reuters

Tesla’s stock price has tumbled to a 15-month low in premarket trading Thursday, April 18. The significant drop comes after investment bank Deutsche Bank downgraded the electric vehicle giant’s stock rating, highlighting a “considerable risk.”

Deutsche Bank downgrades Tesla stock

The bank cut its rating for Tesla Inc (NASDAQ:TSLA) to Hold from Buy in a note, lowering the price target to $123 from $180 per share.

Deutsche Bank believes there is a considerable risk from “going balls to the wall for autonomy,” following recent news and the likelihood of the Model 2 push-out and the company’s change of strategic priority to Robotaxi.

Deutsche Bank had previously warned investors about downside risk to Tesla’s deliveries, pricing, and earnings through 2025.

However, the longer-term Buy rating was predicated on the next-gen vehicle priced at $25k coming late next year, which they felt would allow the company to reaccelerate volume, margins and free cash flow and potentially come to dominate the Western electric vehicle market.

It is believed that pushing out Model 2 will create significant earnings and free cash flow pressure on Tesla’s 2026 estimates, and “make the future of the company tied to Tesla cracking the code on full driverless autonomy, which represents a significant technological, regulatory and operational challenge.”

“We view Tesla’s shift as thesis-changing and worry the stock will need to undergo a potentially painful transition in ownership base, with investors previously focused on Tesla’s EV volume and cost advantage potentially throwing in the towel, and eventually replaced by AI/tech investors with considerably longer time horizons,” argues Deutsche Bank.

The bank feels the delay of Model 2 efforts will create the risk of no new vehicle in Tesla’s consumer lineup for the foreseeable future, which “would put continued downward pressure on its volume and pricing for many more years, requiring downward earnings estimate revisions for 2026+.”

TSLA hits fresh lows as selloff extends

Premarket Thursday, Tesla’s stock is trading at 153.32 per share, down 1.36% from Wednesday’s close. This is its lowest level since April 2023. However, the stock had initially fallen to lows last seen in January.

Ahead of the company’s earnings, Wells Fargo analysts said they expect a Q1 miss from Tesla, with expectations low after weak deliveries.

Meanwhile, UBS reiterated a Neutral rating on the stock in a recent note, highlighting plateauing electric demand and more China competition as factors that could impact TSLA's near-to-mid-term growth.

Following a survey, UBS noted that in China, Tesla shows negative momentum year-on-year compared to premium and top-end Chinese electric vehicle brands. They also stated that US interest in owning a car that can drive autonomously was flat year-on-year.

“The majority (~55%) still indicated they would want to pay for such a feature as a lump-sum. In our view, we believe the current $12k FSD purchase price would need to come down to see higher levels of adoption," stated the investment bank.

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