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Why does Tesla stock keep dropping?

Published 03/14/2024, 08:22 AM
© Reuters.

Several Wall Street analysts lowered their target for Tesla (NASDAQ:TSLA) stock recently. Today, UBS analysts cut their numbers due to concerns over potential earnings downside risk. This decision comes amidst a series of challenges faced by the electric vehicle (EV) giant, including demand and production concerns.

As a result, the Tesla stock price has been under pressure in recent months, with investors questioning the company's ability to meet its targets.

Why is Tesla stock dropping?

Tesla shares are down over 32% in 2024 after a more than 11% decline over the past month. After a 4.5% decline in Wednesday’s session, Tesla shares have declined a further 1.4% premarket on Thursday.

As mentioned above, a few factors are impacting the Tesla share price, including demand and production concerns. Competition in China is also a factor.

In a note this week, Wells Fargo analysts described Tesla as “a growth company with no growth.” The bank cut its price rating for the stock to Underweight, saying there is a “downside risk to volume as price cuts are having a diminishing impact.”

Electric vehicle demand has dipped, and Tesla, the market leader, has felt the impact. It is also experiencing pricing competition in China from rivals such as BYD (SZ:002594).

According to data from the China Passenger Car Association, Tesla sold 60,365 China-made vehicles in February, representing a 19% decrease from a year earlier. It is also the lowest since December 2022.

However, in the US, demand is also dipping, and the company is offering incentives to entice customers into the market, such as offering free Supercharging miles. In addition, in February, Tesla temporarily lowered the prices of some of its Model Y cars.

Tesla stock target slashed at UBS

As mentioned, Wells Fargo cut its rating for Tesla on Wednesday, and looking ahead, the bank isn’t confident in the outlook for the company. They expect volumes to be flat in 2024 and down in 2025.

“We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions,” wrote Wells Fargo analysts. Wells Fargo’s 2024 and 2025 earnings estimates for Tesla are 32% and 52% below consensus.

Meanwhile, in a note this week, UBS cut its price target for Tesla to $165 from $225, maintaining a Neutral rating on the stock.

The bank sees a downside risk to first quarter 2024 consensus deliveries. It also lowered its first-quarter 2024 delivery forecast to 432k from 466k and is 10% below the 477k consensus.

“Our revision is driven by slower EV demand (US, Europe) and slower production in NA and Europe (impacted by power outage),” explained UBS. “Our 2024 delivery forecast is now 1.96mm vs. 2.02mm prior, ~5% below consensus of 2.06mm. Our 1Q24 EPS forecast is down 32% to $0.43 vs. $0.64 consensus and our 2024 EPS is down 16% to $2.32 vs. $2.92 consensus.”

UBS also warned that 2025 forecasts are likely to come down. They explained that aside from slowing EV demand and China competition, concerns include unit growth re-acceleration, meaningful margin re-acceleration seeming dependent on FSD, the China risk, and the possibility that Elon builds AI/robotics outside of Tesla.

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