Gordon Johnson of GLJ Research has never been accused of being a Tesla (NASDAQ:TSLA) fan-boy. In October 2020, when Tesla was still in the early innings of a run from a low-teens share price, to an all-time high north of $400 a share (hit in November 2021), and still beating earnings expectations with regularity, Johnson famously predicted that Tesla stock would crash, and fall 90% from its then current price – all the way back to a mid-teens valuation.
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That didn’t happen, of course. Instead, Tesla continued racing higher and higher, until a series of mostly self-inflicted wounds robbed the stock of its momentum late in 2021. The stock has proven a bit more erratic in the years since, often falling 35% and more over the space of a few months before turning around to race higher again.
Throughout all Tesla’s successes, and its stumbles as well, Johnson’s opinion of the company has never wavered: In this analyst’s view, Tesla always costs too much, and always is mere months away from a crash. But this time, he might be right.
Previewing Tesla’s upcoming earnings report, Johnson issued his latest warning that overvalued Tesla stock is due for a fall. This time, only an 89% decline, from about $209 last night to the incredibly specific price of $23.53 per share.
As the analyst explains, “persistent price cuts” by Tesla’s rivals and by Tesla itself, combined with “heavy inventory discounting” of used cars for sale, may finally convince a lot of analysts, who have previously backed Tesla stock, to “re-rate” the stock lower – removing their “buy” ratings and replacing them with “holds” and “sells” – and potentially sapping investor enthusiasm for Tesla shares as a result.
Used Teslas in dealer inventory, warns Johnson, have seen their prices fall by nearly half over just the last six months. And this decline in the value of used Teslas is much bigger than the overall 12% decline in used car prices, generally.
Partly this decline in used Tesla prices is a result of Tesla cutting the prices of its new cars. And these new car price cuts have been driven by Tesla’s unfortunate decision to keep building new cars at a rate faster than buyers have been willing to buy them – resulting in some 112,000 brand new Teslas currently sitting in inventory, awaiting buyers, and requiring price cuts to move them. Worsening the picture, Hertz recently announced plans to dump 20,000 used electric cars (many of them Teslas) on the market as it trims its EV fleet – a move that probably accelerated the depreciation of used Tesla inventory.
It doesn’t help, either, that the U.S. government recently made it harder for Tesla buyers to qualify for income tax rebates on popular Tesla models such as the Model 3. Nor that over in China, there’s a full-fledged price war raging among EV manufacturers, causing Tesla to cut new car prices there as well.
So what does this mean for Tesla in 2024? Johnson predicts investors will see continued price cuts on Tesla cars, and slowing production of those cars as well. Operating profit margins on Tesla’s sales may fall as far as 6.3% (down more than 10 full percentage points from Tesla’s peak in 2022). And non-GAAP earnings per share could be as bad as $2.04 (barely half Wall Street’s average $3.79 prediction) this year, with a deterioration to $1.71 in 2025 and then a further decline to $1.51 in 2026.
Suffice it to say that with a stock price more than 10x what Johnson thinks Tesla should sell for, and earnings in a prolonged slide lower, Johnson says investors should “sell” Tesla stock today. Just like he’s said every day in the past.
Not everyone out on Wall Street is quite as bearish regarding Tesla as Johnson, considering TipRanks analytics showcase TSLA as a Hold (i.e. neutral). Out of 26 analysts polled in the last 3 months, 10 are bullish on the stock stock, 11 remain sidelined, and 5 are bearish. With a return potential of about 10%, TSLA’s consensus target price stands at $231.24. (See TSLA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
