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The Stock of Tesla Hasn't Fallen Far Enough, This Analyst Sees a 30% Decline in the Future

January 26, 2024
minute read

Tesla Inc. faced a substantial downturn in its stock value following another disappointing earnings report this week, prompting one analyst to assert that the punishment inflicted on the electric vehicle (EV) giant was insufficient. The company's stock, symbolized as TSLA, experienced a sharp decline of 12.1% on Thursday, triggered by a fourth-quarter profit and revenue miss coupled with a pessimistic 2024 outlook released late Wednesday. This marked the fourth consecutive quarter in which the stock endured significant one-day post-earnings-report selloffs, averaging a 10.2% drop on these occasions.

Despite the notable decline, J.P. Morgan analyst Ryan Brinkman, a longstanding bear on Tesla, expressed the opinion that the stock had not suffered enough, indicating potential for further downside. Brinkman, maintaining an underweight rating on Tesla for the past three years, revised his price target down to $130 from $135. This new target suggests a 29% decrease from the closing price of $182.63 on Thursday.

Brinkman's primary concern revolves around what he perceives as inadequate criticism from investors regarding Tesla's strategy to cut prices, sacrificing profit to boost vehicle sales. Drawing a comparison to traditional automakers, Brinkman emphasized that when they employed similar tactics in the past, they were rightfully criticized for discounting and "dumping" vehicles into rental car fleets. Such practices were seen as detrimental, destroying residual values of used vehicles, future vehicle margins, and brand equity.

In contrast, when Tesla pursued a similar approach, investors responded positively. The stock soared by 101.7% in 2023, despite a 45% decrease in the FactSet consensus for 2024 net income, dropping from $24.94 billion at the end of 2022 to $13.65 billion by the end of 2023. Further declines in the consensus were recorded in January, reaching $11.35 billion. Brinkman argued that since October 2022, when profit expectations for 2024 peaked before Tesla implemented its price-cutting strategy, the stock has remained relatively stable, while profit expectations have plummeted by about 60%.

While Brinkman's viewpoint is a minority stance on Wall Street, with only seven of the 49 analysts surveyed by FactSet taking a bearish position, he remains steadfast in his assessment. Among the surveyed analysts, 19 are bullish, and 22 adopt a neutral stance. The average stock price target from these analysts is $221.25, indicating a 23% upside from Thursday's close, a figure that stands in stark contrast to Brinkman's target, which is 70% lower.

Over the past three months, Tesla's stock has declined by 10.1%, diverging from the upward trajectories of the Global X Autonomous & Electric Vehicles ETF (DRIV), which gained 10.1%, and the S&P 500 index (SPX), which advanced by 18.5%.

Bryan Curtis
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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