With Tesla (NASDAQ:TSLA) shares down by 22% so far this year, 2024 is already proving to be a disappointment for investors of the EV leader.
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It’s not about to get any better on the delivery front, either, says Piper Sandler’s Alexander Potter. The 5-star analyst has made some downward revisions to his estimates and now thinks Tesla will deliver 1.93 million vehicles in 2024, compared to his prior forecast of 2.18 million. The new outlook factors in an increase of ~119,000 units vs. 2023, amounting to a 7% year-over-year uptick.
Moreover, it is also not about to get any better on the all-important margin front. Given an aging product lineup, Potter thinks the prospect of further price cuts is all too real. Accordingly, the analyst sees the 2024 Automotive gross margin (excl. credits) dropping by 110bps YoY to 16.6%.
In fact, when assessing the company’s auto biz, Potter offers a bleak outlook for Tesla. “In our view, Potter explained, “no matter how well the Cybertruck or other future vehicles ultimately perform, it is no longer possible for TSLA to achieve sustainable valuation upside by relying solely on car manufacturing.” In fact, according to Potter’s most optimistic calculations, Tesla’s auto business is not worth more than $135/share.
Given the new outlook for car sales this year, Potter has lowered his price target from $295 to $225. Still, there’s potential upside of 24% from current levels. Potter’s rating stays an Overweight (i.e., Buy). (To watch Potter’s track record, click here)
So, if Potter only values the EV maker at $135 per share at most, how come his price target stands at $225?
The answer is pretty simple: “It’s important to remember: many bulls own TSLA for non-automotive opportunities,” says Potter. “Non-automotive catalysts can (and often do) emerge, driving sudden multiple expansion. We think it’s best to own at least some TSLA, in anticipation of catalysts like these.”
The most obvious of these catalysts, says Potter, is Tesla Energy, which seems “closest to an upward inflection.” The analyst expects the Energy segment to generate 12% of company-wide revenue by 2025, compared to just 6% in 2023, while he anticipates the company will capture 15%-20% of worldwide stationary battery deployments eventually.
Although, in general, Potter remains “no less bullish on Tesla’s multi-year prospects,” not all on the Street are quite as confident. All in, the stock claims a Hold consensus rating, based on a mix of 12 Buys, 17 Holds and 5 Sells. That said, the $220.26 average price target still implies shares will post gains of ~14% over the next year. (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.
