Risks to Tesla stock are piling up and investors should prepare for less upside ahead as 'disruption from inside' and a wave of negative headlines weigh on shares, says Jefferies

Risks to Tesla stock are piling up and investors should prepare for less upside ahead as 'disruption from inside' and a wave of negative headlines weigh on shares, says Jefferies
Tesla CEO Elon Musk walks in front of a Model Y image in Shanghai.Aly Song/Reuters
  • Jefferies cut its price target on Tesla to $1,050 from $1,250 on Thursday, seeing less upside to the EV maker's stock.
  • The investment bank said it's "witnessing an uncomfortable pile up of negative news" surrounding Tesla CEO Elon Musk.

Tesla's price target was cut by 16% at Jefferies on Thursday, citing heightened governance risks surrounding CEO Elon Musk as a reason it's seeing less potential upside for the electric vehicle maker's stock.

"Long-held fears of disruption from inside have come true, raising Tesla's risk profile while operating performance continues to set transformative new standards of returns and resource efficiency," Jefferies analyst Philippe Houchois wrote in a note to clients.

The investment bank dropped its price target to $1,050 from $1,250 but retained its buy rating on Tesla.

Tesla shares during Thursday's session were up by more than 6% to trade above $700. But the stock has been knocked down by more than 30% during 2022.

"'Enemy inside' and 'Tesla bigger than Musk' is how we have for years framed the risks from Tesla's unconventional leadership and weak governance," said Houchois. "It is hard to isolate factors behind the recent correction, from Nasdaq, to Twitter financial commitments and China lockdowns, but we are clearly witnessing an uncomfortable pile up of negative news from ratings to polarizing political opinions and ethical questions," he wrote.


"His personality suggests resolution depends on him alone," Houchois also wrote.

Tesla stock has been hit as part of a broader selloff in the technology sector that's pushed the Nasdaq Composite into a bear market.

Meanwhile, Musk has been working on a high-profile deal to buy social media app Twitter for $44 billion but suggested cutting his offer based on the number of bots on the platform. On Thursday came news that Musk put up another $6.25 billion of his own wealth to fund the transaction.

In addition, Musk last week told his 95 million Twitter followers he would switch to voting for Republicans as Democrats "have become the party of division & hate."

The following evening, Insider published a report based on documents saying SpaceX, the aerospace firm that Musk founded, paid a flight attendant $250,000 to settle a sexual misconduct claim against Musk in 2018. Musk in a tweet said attacks against him "should be viewed through a political lens." He didn't make a reference to any specific attacks.


The "low-filter" communication style can be unsettling, said Houchois, "although we find it usually helpful as Mr. Musk freely shares what is on his mind and implications for Tesla, from raw material shortages to manufacturing challenges or future automation."

Tesla has "exceptional fundamentals," said Houchois. "Tesla is set to continue generating [free cash flow] cash faster than it can build physical product and capacity, with cash expected to be deployed into higher battery vertical integration and/or captive financing to support affordability," he said.

"The $trillion question is how far Tesla can take model concentration and how many models are needed to take global share to 5% or 15%," said the Jefferies analyst.