There’s no doubt Tesla’s (NASDAQ:TSLA) Q3 results were a considerable blow to the bulls. The EV leader disappointed on practically all metrics with CEO Elon Musk’s earnings call horror show further depressing sentiment.
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So, with the shares now down by 25% since the summer peak, what will it take for sentiment to shift positive once again? Morgan Stanley’s Adam Jonas thinks that for that to take place, several issues must be sorted out first.
First and foremost, Tesla needs to start meeting its financial targets consistently. Just a year ago, the consensus adjusted EPS forecast for FY24 was $7.30, but by June, it had declined to $4.87, and it currently stands at a mere $3.94.
Execution on the expansion of models beyond S/X/3/Y will also be key. In the meantime, expectations around the Cybertruck have come down significantly. That said, while Jonas still sees the model as “relatively insignificant within the grand scope of Tesla’s future portfolio,” the impact of the launch/ramp execution on sentiment should not be underestimated.
Additionally, a big part of Jonas’ bullish thesis for Tesla rests on the potential to push beyond being primarily an automaker. “Over the next 6 to 12 months, we’d look for further evidence of the business model moving towards more capital light projects (licensing, software) that have relevance beyond the auto market,” the analyst says. That part also relates to Jonas’ belief Tesla will be able to protect its current multiple by showing a “credible link to the AI theme.”
Ultimately, for the stock to move higher rather than further down, Jonas thinks it all comes down to Tesla achieving one or more of the above. “We believe investors will show a willingness to believe in the long-term TAM and profit potential of the company but are unlikely to take further downward revisions in earnings and free cash flow forecasts without cramming down the multiple,” he summed up.
For now, Jonas remains the Street’s most outspoken TSLA bull, keeping an Overweight (i.e., Buy) rating on the shares along with a $380 price target. This suggests the stock will climb 73% above current levels. (To watch Jonas’s track record, click here)
Overall, the TSLA bulls and skeptics split evenly into 14 Buys and Holds, each, and with the addition of 5 Sells, the stock claims a Moderate Buy consensus rating. The forecast calls for one-year gains of 15.5%, considering the average target clocks in at $252.61. (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.
