There’s no way around it, with 1Q24 about to close, this has been a horrible quarter for Tesla (NASDAQ:TSLA). That has been evident on both ends of the supply and demand equation. The planned factory downtimes and a fire next to its Berlin factory have affected supply, exacerbated by Model 3 Highland upgrade issues in the US, but it’s not as if consumers have been lining up to get their hands on new vehicles.
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Like the rest of the industry, Tesla has had to contend with waning demand and Q1 delivery estimates have now been reduced from 475,000 to 425,000. Trumping all other concerns are the trends seen in the highly competitive key market of China, and that has even one of the Street’s biggest Tesla bulls thinking it’s time to reassess the EV giant’s prospects.
Wedbush’s 5-star analyst, Daniel Ives, says it’s time for a reality check.
“China demand remains very soft coming out of the gates for 2024,” Ives said. “The last two weeks the soft delivery data now takes off the 2.1 million units for the year as a baseline with 2.0 million a more realistic target to hit for 2024 and our numbers come down accordingly. We now estimate China deliveries are down 3%-4% YoY this quarter. We expect 1Q delivery numbers out next Tuesday morning and this will not be a moment of celebration for the bulls and instead be a rip the band-aid quarter for Tesla investors.”
Right now, says Ives, the Tesla narrative is as bad as it has ever been, but unlike in the past, the current negative sentiment is “warranted as growth has been sluggish and margins showing compression with China a nightmare.”
While overall Ives remains confident in the company’s FSD/autopilot strategy and remains “bullish on Tesla over the next few years,” he nonetheless concedes patience is “starting to wear very thin among investors. “This is being exacerbated by the Musk AI outside of Tesla chatter, Board issues, Delaware Musk comp void, and now a likely move to incorporate in Texas,” he explained.
According to Ives, to turn the situation around, Tesla and Musk must implement the following measures: 1) Provide a clear range of guidance for margins and deliveries in 2024, 2) Conduct a Q1 conference call addressing the demand challenges in China and outlining the strategy to counter the decline, 3) Organize a battery/AI event and outline the roadmap and monetization plan for the upcoming years, 4) Musk should pledge to continue as CEO of Tesla for the next 3-5 years, focusing on its AI initiatives, and 5) Initiate a genuine advertising campaign.
Ives thinks the current situation merits a lower price target, which he reduces from $315 to $300. Still, there’s potential upside of 70% from current levels. Ives’ rating stays an Outperform (i.e., Buy). (To watch Ives’ track record, click here)
Turning our attention to the rest of the Street, TSLA is supported by 8 other analysts who also rate the stock as a Buy, while 19 suggest a Hold, and 7 recommend a Sell. This results in an overall consensus rating of Hold. With an average target of $198.72, it is anticipated that shares could yield a 13% return in the next year. (See Tesla 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.
