Tesla shares (TSLA.O) experienced a decline of approximately 2% on Wednesday following a downgrade from Wells Fargo, which raised concerns about the diminishing impact of the automaker’s price cuts on the demand for its electric vehicles. The downgrade to “underweight” comes amid a broader global slowdown in electric vehicle (EV) demand, stemming from a price war initiated last year. As a result of this market trend, Tesla has witnessed a significant drop in market value, losing nearly $200 billion as its shares plummeted by approximately 29% since the beginning of the year.
Wells Fargo’s downgrade was accompanied by a substantial reduction in Tesla’s price target, which was slashed to $120 from $200. This revised target, among the lowest on Wall Street, implies a 32% downside to the stock’s last closing price. Investor apprehension regarding Tesla’s future prospects heightened after CEO Elon Musk cautioned in January that the company’s growth would be “notably lower” this year.
Despite Tesla’s struggles, it stands out among the “Magnificent Seven” stocks, including Microsoft (MSFT.O), Apple (AAPL.O), Nvidia (NVDA.O), Amazon (AMZN.O), Alphabet (GOOGL.O), and Meta Platforms (META.O). However, Tesla’s forward price-to-earnings ratio of 52, the highest among the group, reflects analyst concerns about its earnings potential. Analysts have revised their earnings estimates downward, with the average estimate for 2024 dropping by approximately 10.8% over the past 30 days.
While Tesla faces challenges, some analysts believe that the demand slump may stabilize later in the year. Dan Ives, an analyst at Wedbush, noted that while the price wars in China have been intense, industry checks suggest that the frequency of price cuts is beginning to taper off as we move into spring and summer of 2024.
Despite the optimism of some analysts, Tesla has encountered increasing bearish sentiment among brokerage firms. According to data from LSEG, nine out of the 48 brokerages covering Tesla have issued bearish ratings, the highest number since July 2022. The stock’s price was trading near a 10-month low at $173.45, reflecting ongoing investor unease about Tesla’s future trajectory.
In summary, Tesla’s recent stock performance underscores the challenges it faces in navigating a turbulent market environment characterized by a global slowdown in EV demand and intensifying competition. While some analysts remain hopeful that demand will stabilize, others caution that Tesla’s price cuts may not have the intended impact on stimulating demand for its electric vehicles. As Tesla grapples with these challenges, investors closely monitor developments to gauge the company’s ability to regain its footing in the EV market.
