By Michael Elkins
Shares of Tesla (NASDAQ:TSLA) are up 1.72% in pre-market trading on Tuesday after Bernstein reiterated an Underperform rating on the stock with a $150.00 price target. TSLA has underperformed by 41% since October 1 and is now down 48% YTD. Analysts believe that the principal driver behind the electric vehicle company’s recent pullback is investor concern about softness in demand and the associated growth vs. margin tradeoff the company may increasingly face. Bernstein also believes that CEO Elon Musk’s acquisition of Twitter has contributed to concerns.
Analysts wrote in a note “We believe that TSLA's decline is primarily attributable to investor concern about softness in demand, particularly in China, amid collapsing order lead times for cars. The Chinese EV market has grown explosively at 126% YTD through September, but Tesla's EV growth in China has been 55%. The worry is that Tesla's current models may be reaching saturation, and that Tesla will need to cut price - and face lower margins - to continue its current growth trajectory, or grow more slowly going forward.”
Given TSLA's YTD, Bernstein sees risk/reward on the stock as more balanced now, though still somewhat negative, given the company’s elevated absolute valuation, and the increasing risk of downward revisions amid potential demand challenges. Bernstein also worries about the potential for broader market pressure amid slower consumer spending, which would likely impact higher valuation stocks such as TSLA disproportionately.