Stock market success does not always reflect real-world performance. There can sometimes be a disconnect between the two as has been the case with Tesla (NASDAQ:TSLA) this year.
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On the one hand, Tesla shares are up 92%, but against a backdrop of softening demand and a set of price cuts taken to boost volumes, margins have suffered badly. The result is that 2023 EPS sits ~50% below consensus estimates at the start of the year.
Considering the gap between the financial profile and the stock’s gains, Bernstein analyst Toni Sacconaghi thinks investors might be wondering “what will be different in 2024?”
“Our belief is that Tesla’s valuation has been supported by growth expectations, even as margins have eroded,” says the analyst. “We expect delivery and revenue estimates for 2024 and 2025 will come down materially. While significant downward EPS revisions had no impact on TSLA’s stock this year, we believe a waning of the growth narrative could weigh on the stock’s multiple (currently ~75x 2023 earnings, well above higher margin, growth stock peers).”
It’s well-known that Tesla has a demand problem, an issue that Sacconaghi believes stems from its “narrow (and expensive)” product family, which essentially consists of only two vehicles (Model 3 and Model Y). The combined impact of market saturation and increasing competition from other EV manufacturers has resulted in price cuts and margin pressure. Since there are no new high-volume offerings expected to enter the market until 2026, this is a dynamic that will likely persist. “Moreover,” adds Sacconaghi, “the attractiveness and profitability of such an offering is still uncertain.”
Meanwhile the Cybertruck has been released but it’s a niche product with a small addressable market. Even worse, Sacconaghi reckons it will be an “incremental 100 bps headwind to GMs in 2024.”
As such, the outlook is bleak, so much so, that Sacconaghi calls his Underweight (i.e., Sell) position in Tesla a “best idea for 2024.”
That Underweight rating is accompanied by a $150 price target, implying Tesla shares will lose 37% of their value in the year ahead. (To watch Sacconaghi’s track record, click here)
As for the rest of the Street, 5 of Sacconaghi’s colleagues join him in the bear camp and with an additional 14 Buys and 13 Holds, the consensus view is that TSLA stock is a Hold. According to the $245.89 average target, the shares are currently fully valued. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
