As fears of a weak first quarter loom over the electric vehicle giant, analysts at Wells Fargo have decided to add the Tesla (NASDAQ:TSLA) stock to the firm’s tactical ideas list, keeping an Underweight rating on the shares.
However, the investment bank is not the only firm downbeat ahead of Tesla’s first-quarter results. Several analysts have lowered their targets ahead of the release.
Analysts cut numbers into Q1 deliveries report
Wedbush said Tesla’s first-quarter deliveries signal a “nightmare quarter” for the Elon Musk-led company, which is grappling with sluggish deliveries and weak demand in China.
“The biggest and most concerning issue for Tesla (and its investors) remains China as rising EV competition and a lingering price war has made this key market very challenging for Tesla the last year and especially this quarter,” Wedbush analysts wrote in a note.
HSBC recently reiterated a Reduce rating and $143 price target on Tesla, cutting its forecasts, saying cheaper Teslas are not necessarily driving higher volumes.
"We cut our forecasts to reflect deeper-than-expected price cuts (c10% rather than 5%). We can see that these price cuts might be supported by cost improvements, but we are not convinced continued devaluation is what the market wants,” the firm wrote.
Elsewhere, Citi cut its price target for Tesla to $196 from $224 while maintaining a Neutral rating on the stock.
"Ahead of Tesla’s Q1 delivery release, we’re lowering estimates to reflect recent data points. Our Q1 delivery estimate goes to 429.9k from 473.3k,” said Citi.
They added: “While buy-side Q1 delivery estimates (we believe in the low 400s range) sit well below the sell-side consensus (460-470k, but coming down), the setup remains challenging with street estimates still looking too high, not only for 2024 but also 2025.”
Wells Fargo sees big downside for Tesla stock
Of course, Wells Fargo is another firm downbeat on Tesla. The firm added the TSLA stock to its second-quarter 2024 Tactical Ideas List and maintained an Underweight rating on the shares in a note on Monday.
Wells Fargo stated, “We see moderating delivery growth driven by lower demand and diminished return on price cuts.”
The bank’s FY24 delivery estimate of 1.8 million units represents flat growth year-over-year and remains 10% below consensus. Wells Fargo explained that it remains concerned with recent flattening trends across all three key regions (US, EU, China).
“Few levers remain to increase volumes outside of pricing and model refreshes as government incentives may run out,” added Wells Fargo. “Price actions thus far have indicated diminishing returns on volume.”
Wells Fargo notes that price cuts remain a big risk for Tesla while they see moderating earnings growth ahead. They also highlight the concerns in China.
“Flattening EV adoption in the US and EU, with aggressive competition in China leave little immediate levers to pull to increase volumes,” they stated. “The rapid price reduction on high volume Model 3/Y over the last year has yielded diminishing returns; with only 3% volume growth on 5% price cuts H/H in 2H23.”