Tesla (NASDAQ:TSLA) stock is down about 15.5% year-to-date, underperforming the S&P 500’s (SPX) over 14% gain. Despite this drop, Wells Fargo (WFC) analyst Colin Langan suggests that Tesla stock could further decline. The analyst added TSLA to his Q3 “Tactical Ideas List” with a Sell rating. Also, Langan’s price target of $120 implies a 42.86% downside potential from current levels.
Before we move ahead, it’s worth noting that Langan’s best rating has been on Ree Automotive (NASDAQ:REE), a commercial EV company. His Sell call on REE stock from March 25, 2022, to March 25, 2023, generated a solid return of 85.8%.
Here’s Why Langan is Bearish on TSLA
The analyst’s bearish view reflects Tesla’s declining delivery growth rate. Moreover, he added that Tesla’s price cuts have failed to significantly boost volumes. The analyst expects Tesla’s automotive gross margins to see additional pressure due to price cuts and lower volumes.
The analyst predicts Tesla will deliver 1.55 million units in 2024, down from 1.85 million units in 2023. Langan sees weakness across all of Tesla’s key markets and heightened competition in China. The analyst also expressed doubts about the demand for Tesla’s new models.
Tesla Stock’s Valuation Is a Concern
Langan noted that Tesla’s current valuation stands out unfavorably against other “Magnificent 7” stocks.
According to the analyst, TSLA stock is trading at a price-to-earnings multiple of 82, much higher than the average multiple of 35 for other Magnificent 7 stocks. He added that Tesla has a higher multiple despite lower earnings growth potential, which is a negative sign.
Tesla’s Deliveries to Decline
According to the TipRanks Stock Analysis tool, “Bulls Say, Bears Say,” analysts bearish on Tesla stock expect the company’s Q2 deliveries to be lower than consensus estimates. These analysts see near-term headwinds from slowing EV demand, competition, and declining profits due to price cuts.
It’s worth noting that Tesla reported disappointing Q1 2024 deliveries. It delivered about 387,000 vehicles in Q1, well below Street’s forecast of 457,000.
Is Tesla a Buy or Sell?
Tesla stock has a consensus rating of Hold based on 12 Buys, 14 Holds, and eight Sell recommendations. The price target for TSLA stock is $182.10, implying a 13.23% downside potential from current levels.
