Top Analyst Lowers Tesla Price Target

Elon Musk has gone from hero to villain in just a few short years. Regardless of the sentiment on the man himself, there is no denying that his remarkable rise from South African immigrant to billionaire tech mogul is one of the most intriguing entrepreneurial stories of recent years.

Musk took a majority stake in Tesla (NASDAQ: TSLA) in 2003 and quickly escalated his role within the company. Tesla first produced lithium-ion battery-powered electric vehicles (EVs) in 2008, and the company quickly became the largest manufacturer of EVs in the world.

That changed in January when Chinese EV maker BYD surpassed Tesla as the biggest EV producer. It’s the latest in a long string of bad looks for the company. TSLA investors have been none too happy about Musk’s purchase of Twitter (now rebranded to X).

Dan Ives Price Target

Dan Ives price target for Tesla is $315 per share which represents a 66% share price gain from current levels.

Musk’s controversial opinions have also put some investors off. But TSLA holders should be disturbed that long-time Tesla supporter Dan Ives, of Wedbush Securities, recently reversed course.

After the latest earnings, Ives called the company a “train wreck”, pulled TSLA from his firm’s list of “good ideas”, and dropped his price forecast.

So what made Dan Ives lose faith in Tesla?

Why Did Tesla Stock Drop?

Tesla stock picked up steam in 2020 when the company increased its production capabilities. A wide scale shift to EVs was considered a foregone conclusion, and the speculation about the company’s early position in the industry drove TSLA share price up to over $400 per share by late 2021.

The technology sector struggled in 2022 and Tesla didn’t buck the trend, but most of the top technology firms bounced back over the past year. TSLA, on the other hand, is down over 1% over the past 12 months, and a good chunk of that decline took place in early 2024. That’s largely due to concerns stemming from the release of the 4th quarter earnings.

Revenue of $25.17 billion was up 3% from last year but it was 2.32% below analysts’ expectation of $25.64 billion. Tesla more than doubled its net income from last year, up from $3.69 billion to $7.93 billion in the 4th quarter, but most of that windfall was due to a one-time tax benefit.

Excluding the $5.9 billion tax break, Tesla’s net income was nearly 40% lower than the same quarter of last year. Also concerning was the letter Musk sent to shareholders warning that EV sales would be much slower in 2024.

What Can Tesla Do To Recover?

The lagging sales and profits caused strident Tesla bull Dan Ives to reduce his price target from $350 to $315. That’s still a substantial improvement from where the stock currently trades at around $187. But it’s disquieting that Ives lamented the fact that there were no “adults in the room” on the earnings call.

Ives also felt the need to draft a list of 10 things that Musk and Tesla should do to turn things around. Among those items were a $10 billion share buyback plan and an end to the constant price drops that were intended to keep Tesla competitive. Ives wants a moratorium on Tesla stock sales to keep X afloat.

He requested more structure in the company’s AI development process, and tangible production deadlines for the Model 2 and the budget EV that Tesla plans to deliver in 2025.

Analysts Ratings On Tesla Stock?

Wall Street analysts are starting to share Ives’ frustration with Tesla. 48 analysts cover the stock and 44% rate it as a Hold. The consensus price target is $225 per share, which would be a 19.7% 1-year return.

40% of the analysts still believe TSLA is a Buy at this price point, and the highest forecast has the stock jumping up to $345 per share representing an 83.6% gain.

On the other hand, 17% of analysts rate Tesla stock as a Sell with some speculating a decline of 63.8% is on the cards to $68 per share.

Is Tesla Stock Undervalued?

Even after the near 25% share price decline year-to-date, Tesla’s price-to-earnings ratio is 43.66x, which is higher than the tech industry average P/E of around 30x. Still, given the company’s position in a growth industry, a high P/E would not necessarily deter investors if the company’s financials were solid.

Unfortunately, though, revenue has stagnated in 2023. Even worse, the company made drastic vehicle price drops to keep up with the competition, a move that has cut into Tesla’s margins. Gross margin dropped from 25.6% in 2022 to 18.2% in 2023. That will only fuel concerns that Tesla can’t keep up with the new field of competitors.

The potential to leverage AI technology has been a driving factor in the comeback of many technology stocks in 2023. Tesla was considered at the forefront of the AI boom with its autonomous driving system and its robotics technology. Both of those technologies were considered business opportunities in and of themselves.

Indeed, Tesla just announced it will be building a $500 billion supercomputer for its Dojo AI tech, with the ultimate aim of building a self-driving car. But Musk called the technology a “long shot bet” that was high-risk, high reward.

Is Tesla Stock a Buy or Sell?

The vague and often contradictory statements that Musk and Tesla’s leadership deliver have been frustrating to investors. Now that the company is missing earnings expectations and calling for a down year, those frustrations are only going to continue to mount.

The way that Musk and his team have handled deeply concerning issues for shareholders caused Dan Ives to call for “adults in the room.”  Nonetheless, some investors may be tempted to take a stake in Tesla as the stock continues to drop. Even if the company isn’t the biggest global EV maker anymore, Tesla delivered 484,000 vehicles in the 4th quarter.

If the company starts taking Mr. Ives’ advice, there is no doubt that TSLA could be back on the rise. At this point, however, there’s no guarantee if or when that will happen.

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