If electric vehicles (EVs) are going have another year of record-setting sales growth, one may wonder if Tesla will be in the mix.
That’s because Wells Fargo analysts recently wrote that the EV manufacturer’s stock could decrease by double digits and currently looks like a, “growth company with no growth,” Markets Insider and other news outlets report. The bank downgraded its Tesla rating from “neutral” to “underweight” and cut its stock price target from $200 a share to $125 a share — a 23 percent dip from where the stock was trading the afternoon of March 14. Wells Fargo also projected zero growth in sales volume for Tesla in 2024 and that they’ll continue to fall in 2025.
Tesla’s issues stem from a few different factors, according to Wells Fargo’s analysts. First, Wall Street strategists have warned that EV demand could slow in 2024. If that happens, Tesla will have to decide if it will continue to cut prices to stay competitive with industry rivals such as China’s BYD and legacy U.S. auto manufacturers, Markets Insider reports.
“We see downside risk to volume as price cuts are having a diminishing impact,” Wells Fargo analysts in the note. “We see headwinds from disappointing deliveries and more price cuts, which likely drive negative EPS revisions.”
Additionally, there is no guarantee that Tesla will able to grow at the fast pace its costly valuation promises, Bloomberg reports. The company’s pace of expansion in its revenue and profit has slowed considerably since last year. Additionally, Tesla’s recently slide has knocked more than $245 billion off of its market value.
“Right now, the market is voting and telling us that it believes Tesla does not currently deserve that high valuation,” Adam Sarhan, founder and CEO of 50 Park Investments, said in an interview. “For now, the sellers are in control and the market needs a bullish catalyst to get excited about.”
Wells Fargo’s outlook notes Tesla earnings per share coming in 32 percent under Wall Street’s 2024 estimates and 52 percent below consensus estimates in 2025.
“For the longest time, Tesla has been heavily invested in one of the market’s favorite narratives, the electrification of the world’s car fleet,” David Wagner, portfolio manager at Aptus Capital Advisors told Bloomberg. “Now, the market’s favorite narrative is artificial Intelligence and ESG has taken a bit of a back seat, thus the historical valuation premium may no longer be warranted, especially as future revenue growth and margin have slowed.”
Tesla already plans to launch its less expensive Model 2, but that move could disappoint investors, due to the vehicle’s low profitability, according to Wells Fargo’s analysts.
All is not lost for Tesla, however. The automaker is looking ahead for ways to gain a cost advantage, perhaps by continuing to develop unboxed production methods in an effort to lower costs. Tesla’s stock also still trades at around 55 times its forward earnings, compared to the average of about 31 for the Bloomberg Magnificent 7 Price Return Index.
If Tesla’s full self-driving technology and other solutions are successful, it could again a “big head start on autonomy,” the Wells Fargo team said.
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