The Stock of Tesla Gets Downgraded as This 'potentially Painful Transition' Looms

A Deutsche Bank analyst, Emmanuel Rosner, has expressed concerns regarding Tesla Inc.'s future, particularly anticipating a potentially challenging transition in its ownership base as the electric vehicle company intensifies its focus on autonomy.

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Despite Rosner's earlier caution regarding Tesla's delivery and earnings prospects, he maintained a buy rating, buoyed by optimism surrounding the anticipated launch of the low-cost Model 2 vehicle next year. However, uncertainties surrounding the prospects of this car have prompted a reassessment, leading Rosner to downgrade the stock to hold on Thursday, marking a significant shift in his investment thesis.

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Rosner fears that investors who were primarily interested in Tesla's electric vehicle volumes and cost advantages may now be inclined to abandon the stock. Conversely, he anticipates a shift in the investor base towards more technology-focused individuals with longer investment horizons, attracted by Tesla's artificial intelligence prospects.

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The delay in Model 2's development poses risks for Tesla, potentially resulting in a prolonged absence of new vehicles in its consumer lineup, which could further depress its volume and pricing dynamics for an extended period, according to Rosner.

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Tesla's shares have already experienced a 2% decline in Thursday's morning trading session, contributing to a year-to-date loss of 39%.

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Rosner's earlier estimates suggested Tesla could achieve 1 million units of Model 2 volume by 2027, but he has revised these projections significantly downwards to only 80,000 units. Consequently, he has also adjusted his earnings-per-share expectations for 2027 downwards from $4.25 to $2.40.

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Moreover, Rosner highlights the risks associated with potential further downside if Model 2 experiences further delays or gets canceled.

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He points out that Tesla's current vehicle lineup is showing signs of demand weakness and pricing pressures, with limited avenues for growth without the introduction of new models. The emergence of competition, particularly in China, coupled with Tesla's constrained free cash flow, could exacerbate these challenges.

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Tesla's intensified focus on autonomy, culminating in plans for a robotaxi announcement in August, holds promise for significant gross profits by 2030, estimated at $15 billion by Rosner. However, he cautions that achieving this goal entails overcoming substantial technological, regulatory, and operational hurdles.

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While Tesla's CEO, Elon Musk, has announced an unveiling of the Robotaxi on August 8, Rosner emphasizes that readiness for deployment remains uncertain. He underscores the considerable execution risk associated with the development of Robotaxi technology and suggests that fleet deployment may still be years away.

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