Electric vehicle leader Tesla is experiencing a series of downgrades and negative forecasts from Wall Street analysts, who are doubting the company’s ability to maintain its rapid growth amid rising competition and weakening demand. The stock has already dropped almost 60% from its peak in 2021, and analysts are uncertain if it will reach a new record high again.
The latest blow came from Wells Fargo analyst Colin Langan, who slashed his rating on the EV manufacturer to the equivalent of a “sell” this week. In a scathing research note, Langan said that Tesla (TSLA) has become a “growth company with no growth” as price cuts are not contributing to boosting sales volumes as the company initially expected.
“We see downside risk to volume as price cuts are having a diminishing impact”, Langan wrote, lowering his price target on Tesla stock to $125 from $200. “We expect volumes to be flat in 2024 and down in 2025.”
Langan forecasts that Tesla will fail to grow its deliveries this year compared to 2023’s record of 1.8 million vehicles. His estimates for 2024 and 2025 earnings are now 32% and 52% below Wall Street’s consensus, respectively.
Sales Volumes Did Not Respond Positively to Tesla’s Price Cuts
The Wells Fargo analyst highlighted that in the second half of 2023, Tesla’s sales volumes rose only 3% versus the first six months despite the company cutting prices by around 5% during that period. This dynamic of slowing volume growth, even after the deep discounts, is quite concerning in Langan’s view.
“In the wake of [price] cuts are lower lease residuals, disgruntled customers and the possible loss of the luxury brand premium”, he warned investors.
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Tesla’s struggles to sell electric vehicles profitably, despite steep price cuts implemented globally since last year, lie in stark contrast to its CEO Elon Musk’s ambitious growth targets. In 2022, Musk predicted that his firm could increase vehicle sales at a compound annual rate of over 50% for years to come.
Those lofty expectations helped justify Tesla’s premium valuation, with the stock trading at 58 times its projected 2024 earnings even after falling 32% so far this year. The average forward price-to-earnings multiple for the so-called “Magnificent Seven” group of big tech stocks, previously led by Tesla, is just 31.
“While an EV and battery technology leader, Tesla screens poorly relative to Mag 7 peers”, Langan stated, hinting that Tesla risks losing its status as part of that elite cohort if it fails to deliver on its promises of stellar growth.
Thus far in 2024, Tesla stock has accumulated a 32% loss as investors have reacted negatively to these tectonic changes to its growth prospects.
Analysts Question if Tesla Is Still a Growth Company
The issues facing Tesla extend far beyond valuation concerns. Analysts are voicing worries that the fundamental growth story powering Tesla’s robust stock performance may be fading as competition intensifies.
“TSLA’s growth in core markets has moderated with EU and China flattish in and the US down since Q2 [of last year]”, Langan commented.
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Signs of peaking demand have emerged across Tesla’s major markets. In China, once a critical growth driver, the company’s sales slumped to their lowest levels in more than a year in February as its local rival, BYD, hits its stride.
Europe is no longer a reliable source of robust growth either. Registration data from the region indicates that Tesla’s momentum has stalled over the past year as legacy automakers like Volkswagen have ramped up and improved their EV offerings.
Even in the US, Tesla’s largest market, sales appear to be softening based on estimates from data analytics firms. After years of seemingly insatiable demand, there are inklings that the automaker is finally reaching saturation among early EV adopters.
Top Tesla Execs Acknowledge That Growth Will Stall
The deteriorating demand backdrop was underscored by Tesla’s own admission in January that vehicle delivery growth rates will be “notably lower” in 2024.
During the company’s Q4 2023 latest earnings call, Vaibhav Taneja, the Chief Financial Officer of the EV automaker, conceded that Tesla is between periods when it comes to its growth. He warned investors not to expect the meteoric rise of the past decade to continue at the same dizzying pace.
“Yeah, as we’ve said in our prior guidance, there will be periods where we won’t be growing at the same rate as before. We are between two major growth waves.”, the executive highlighted.
He continued: “The first one began with the global expansion of Model 3 and Y, and we believe the next one will be initiated with the next-generation platform. In 2024, our volume growth will be, you know, lower, as we have said, because we’re trying to focus the team on the launch of the next-generation vehicle.”
During this same earnings conference, Musk acknowledged that competition in China is heating up and went on to refer to its competitors in that region as the “most competitive car companies in the world”.
“Frankly, I think if there are not trade barriers established, they will pretty much demolish most other companies in the world. So, they’re — they’re extremely good.”, the top boss of Tesla emphasized.
Long-Time Tesla Bull Dan Ives Remains Optimistic About the Company’s Future
Not everyone is turning bearish on Tesla. Dan Ives of Wedbush Securities, a long-time Tesla bull, continues to put its faith in the company and its ability to deliver positive results in the long run.
“The demand story for EVs globally has clearly moderated”, Ives acknowledged, though he expressed optimism that “growth and margin improvement [will] return to the story over the coming quarters.”
The transition to EVs still seems rather certain, though the recent slowing sales may indicate that it may take much longer than previously expected. If Tesla manages to solve the last major problems ailing their EVs, particularly charging time, range, and cost, it could see parabolic growth yet again.
While the debate rages over Tesla’s near-term trajectory, the company confirmed that its capital expenditures will land at around $10 billion this year. “We believe this would be critical in helping us lay the foundation for the next phase of growth.”, CFO Taneja stressed.
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Musk has also hinted at a new engine for growth beyond simply selling more cars each year. Building on Tesla’s artificial intelligence capabilities and deploying autonomous ride-hailing services could unlock major new revenue streams, he proposed in multiple interviews in the past two to three years.
The CEO of the EV maker and tech billionaire is well known for making these types of overly idealistic remarks regarding his ambitions, many of which either never materialize or fail to live up to the exaggerated proportions that he typically refers to.
For now though, most analysts remain skeptical that futuristic AI-driven mobility projects can adequately offset the current deceleration in vehicle deliveries. The focus remains squarely on scrutinizing demand patterns and pricing actions in Tesla’s core auto business.
Unless a clear path to returning to a more appealing growth trajectory emerges soon, downgrades and negative revisions may persist as Wall Street seems to be losing faith in the company’s ability to keep expanding its sales and reach, which is what has powered the stock’s meteoric rise over the past decade. The electric automaker faces an increasingly gloomy outlook from those analyzing the numbers apart from just Musk’s ambitious vision.