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'Growth company with no growth': Wells Fargo says Tesla stock could drop 23% in scathing downgrade

Jennifer Sor   

'Growth company with no growth': Wells Fargo says Tesla stock could drop 23% in scathing downgrade
  • Tesla is a "growth company with no growth," Wells Fargo said in a note downgrading the stock this week.
  • The bank downgraded its rating on the carmaker and slashed its price target for the shares.

Tesla these days is looking like a "growth company with no growth," and the stock could see a double-digit drop that reflects the growing headwinds to sales and earnings, Wells Fargo analysts wrote this week.

In a note on Wednesday, the bank downgraded its rating on Tesla to "underweight" from "neutral" and slashed its price target for the stock from $200 a share to $125 a share. That implies around 23% downside from where the stock was trading on Thursday afternoon, when the shares were changing hands at $163.09 at 1:57 p.m. ET.

The Wells Fargo analysts pointed to a growing number of challenges facing the electric vehicle maker.

Wall Street strategists have warned that electric vehicle demand is set to slow in 2024. That means Tesla will have to choose whether it will continue to slash prices on its vehicles in a bid to remain competitive and edge out rivals like China's BYD as well as legacy US carmakers.

"We see downside risk to volume as price cuts are having a diminishing impact. We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions," Wells Fargo analysts in the note. The bank outlook points to Tesla earnings per share coming in 32% below Wall Street's estimates in 2024, and 52% below consensus estimates in 2025.

Meanwhile, Tesla's expected launch of its more affordably priced Model 2 could disappoint investors, given the low profitability of the vehicle and its seemingly "rushed" timing.

"Even with unboxed savings, Model 2 gross profits look low," the analysts wrote.

The EV maker still has some things going for it. Tesla appears to be "forward thinking" with its manufacturing, the analysts said, with the potential to reap a cost advantage if it continues developing so-called unboxed production methods meant to reduce costs.

Meanwhile, if its full self-driving technology and Dojo supercomputer are a success, that could give the company a "big head start on autonomy," the Wells Fargo team added.

Tesla stock has been off to a rough start in the first quarter, with its stock plummeting 34% from levels in January. The firm slightly missed revenue forecasts over the fourth quarter, pulling in $25.17 billion over the last reporting period.




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