By Tesla Inc.’s stock on Monday gave back some of the previous week’s huge advance following a mixed quarterly earnings report, leading one analyst to say that it just goes to show how hard it is to make calls on the stock.
Bernstein’s Toni Sacconaghi, who has a rare sell rating on Tesla
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shares, said the EV maker’s fourth-quarter earnings report had a bit of something for bulls and for bears.
Tesla on Wednesday reported mixed quarterly results, with revenue slightly below Wall Street expectations, but Wall Street has focused on Tesla’s production outlook for 2023.
Chief Executive Elon Musk said he wanted to put the “concern to rest” that Tesla is going through demand problems, saying that January orders are stronger than ever and that demand far outstrips Tesla’s rate of production.
The stock had its best week in nearly a decade last week, gaining 33% in the week.
“Bulls believe that the longstanding Tesla bull thesis is intact,” Sacconaghi said. The argument is that Tesla is “well positioned to dominate the EV market going forward,” albeit with potentially lower margins in the near to medium term, and that margins will likely hit a low point in the first quarter.
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“Bears believe that near term numbers are too high, 2024 may not be any better, and the stock remains expensive,” Sacconaghi continued. Some bears concede that Tesla appears to have a current cost-and-margin advantage over other auto makers, he said, but they believe that the advantage “will get competed away as others scale production.”
Orders are “most critical to the stock” going forward, Sacconaghi said.
“Strong orders will point to the opportunity to potentially raise price (or increase volumes),” he said, and “weak orders will point to a need to reduce price further, pressuring margins, and potentially calling into question the bull thesis of strong share and margins over time.”
Regardless, the “past week has been a reminder of how difficult Tesla’s stock is to call in the near term,” Sacconaghi said.
Tesla appears to have created demand elasticity, sentiment seems to be improving and the company’s March 1 analyst day could be a further positive catalyst, he said.
“That said, we believe consensus numbers have not been reset sufficiently and there is still further downside from Tesla’s demand struggles,” he said, adding that there’s also the worry that the EV maker’s setup could be “even more challenging” next year, when Tesla will attempt to sell between 2.5 million and 3 million vehicles with mostly the same lineup.
Of the 44 analysts polled by FactSet on Tesla, 28 rate the stock a buy, 11 rate it a hold and 5 rate it a sell. The average target price of $189.90 implies an upside of about 9%.
Tesla shares have lost 39% in the past 12 months, compared with losses of around 9% for the S&P 500
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