Tesla stock has experienced a 6.8% drop in September amid downgrades and estimate cuts, causing concerns among Wall Street investors about the short-term outlook for deliveries. However, amidst this negative sentiment, there is a glimmer of good news in the form of an upgrade that focuses on the long-term potential of the company.
Battle Road Research analyst, Ben Rose, recently raised his rating on Tesla stock from Hold to Buy. Although he hasn't provided a specific price target, his upgraded rating suggests that he expects Tesla stock to outperform the S&P 500 in the coming months.
While others have been downgrading Tesla stock, Rose goes against the grain. According to FactSet, Tesla stock was downgraded five times in June and July. Valuation concerns, as the stock has surged approximately 95% year to date, and a heightened competitive landscape were among the reasons cited by analysts.
Analysts are also tempering their delivery estimates for the end of the third quarter. Deutsche Bank analyst, Emmanuel Rosner, recently revised his delivery number from 455,000 units to 440,000 units due to production downtime taken for plant upgrades during the quarter. Despite this revision, Rosner maintained his Buy rating but lowered his price target from $300 to $285. Overall, Wall Street's collective estimate now stands at around 462,000 units, down slightly from the previous estimate of 473,000 units.
Despite acknowledging these potential challenges, Battle Road's Rose highlights Tesla's dominant position as the leading manufacturer of electric vehicles (EVs). He also mentions upcoming models that will further solidify Tesla's market leadership. These models include the highly anticipated Cybertruck pickup and a smaller, more affordable electric vehicle set to be released in 2025.
Rose underscores Tesla's unwavering commitment to maintaining and expanding its market share, evident through its strategic price cuts. In the first half of 2023, Tesla's market share of U.S. EV sales remains above 60%, far surpassing any competitors.
In conclusion, while Tesla stock faces short-term uncertainties and Wall Street adjustments to delivery expectations, Battle Road Research analyst Ben Rose emphasizes the company's continued dominance in the EV market. With new models on the horizon and a strong focus on market share, Tesla's long-term outlook remains promising.
Tesla's Quest for Fully Self-Driving Cars
Tesla's Fully Self-Driving (FSD) technology has become its ultimate goal. The achievement of truly self-driving cars would not only unlock the potential for a robotaxi business but also entice commuters to invest thousands of dollars in reclaiming their precious time spent on their daily commute. Although mass-market self-driving technology is yet to be developed, this is precisely what Tesla is aiming for.
FSD holds significant value for Tesla, similar to its charger network. Building the largest fast-charging network in the country has played a crucial role in establishing the Tesla brand and enhancing the overall consumer experience. Evaluating the value of FSD technology independently from Tesla's car business has been challenging until recently when Tesla began opening it up to other automakers, such as Ford Motor and General Motors. Unlocking the potential of licensing its tech could unveil the growing value of FSD to investors.
Tesla's energy storage segment also saw impressive growth in sales during the second quarter, with a 74% increase compared to the previous year. Moreover, gross-profit margins rose from 11% to approximately 18%.
According to Rose, this presents an opportunity for a legitimate gross-margin business with a potential range of 25% to 30% annually. He remains optimistic about the long-term outlook for Tesla and suggests taking advantage of the recent stock pullback as an opportunity to invest. Currently, Tesla stock has fallen nearly 20% from its highs in July.
The sentiment among analysts covering Tesla has shifted over the past year, with only 41% giving it a Buy rating compared to 64% previously. This is lower than the average Buy-rating ratio of stocks in the S&P 500, which stands at around 55%. The combination of price cuts and rising interest rates has dampened the enthusiasm of some analysts towards Tesla stock.
The average analyst price target for Tesla stock has also decreased, now at approximately $258 compared to $318 a year ago.
As of Wednesday's closing, Tesla stock stood at $242 per share, representing a 0.8% decrease, while the S&P 500 remained unchanged, and the Nasdaq Composite increased by 0.2%. In premarket trading on Thursday, Tesla stock was down by 1.2%.
