Tesla Stock Forecast: TSLA sinks to lowest level in 10 months following price target cut to $125


  • Wells Fargo cuts TSLA price target to $125.
  • Tesla stock lost its grip on $170 on Wednesday.
  • TSLA is now trading at its lowest level since May 2023. 
  • Technical support for Tesla stock arrives soon in the $150s and $160s. 


 

Tesla (TSLA) lost the $170 support level on Wednesday after analysts at Wells Fargo downgraded Elon Musk's electric vehicle (EV) manufacturer to Underweight from Equal Weight. TSLA stock throttled 4.5% lower to $169.48 after the bank cut its price tag from $200 all the way to $125, citing lower demand and growth. Tesla is now trading at its lowest level in ten months, falling below $169 afterhours.

The NASDAQ and S&P 500 also shrank 0.5% and 0.2%, respectively, as Treasury yields rose, while the Dow Jones Industrial Average gained 0.1%

Tesla stock news: Wells Fargo yells 'sell', sees TSLA at $125

Wells Fargo analyst Colin Langan placed a sell-equivalent rating on Tesla stock for its perceived expensiveness compared with other tech leaders.

“While an EV & battery tech leader, TSLA screens poorly relative to Mag 7 peers, trading at 58x PE vs. peers at 31x,” wrote Langan, in reference to the Magnificent 7 stocks that include Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META) and Nvidia (NVDA)

Complaining about Tesla’s valuation may seem odd to shareholders as Tesla stock has been trending lower since its July 2023 range high and is now 43% below that level. Furthermore, TSLA stock is now down 59% from its all-time high of $414.50 in November 2021. 

Deutsche Bank and Morgan Stanley have both trimmed their price targets on Tesla stock since the start of February — to $218 and $320, respectively — but both houses still have buy-equivalent ratings on TSLA. On Wednesday, Morgan Stanley named Ford (F) its top pick in the automotive industry, citing its continuing profitability from its internal combustion engine (ICE) models.

Besides its issue with the current valuation, Wells Fargo’s main objection is that it's much more pessimistic about profits over the medium term. Langan admits that his EPS estimates are 32% below the 2024 consensus and 52% below the 2025 consensus. 

Alongside Langan’s thesis that price cuts are offering diminishing returns to volume increases, the analyst states, “We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions."

Also on Wednesday, Swedish EV maker Polestar cut the price tag on the Polestar 3 by 12%, citing lagging demand. Tesla CEO Elon Musk visited the Berlin factory in Wednesday after suffering an attack by environmentalists on the factory's electricity infrastructure.

 

EV stocks FAQs

Electric vehicles or EVs are automobiles that use rechargable batteries and electric motors to accelerate rather than internal combustion engines (ICEs). They have been around for more that 100 years, but battery technology research & development was meager for much of the 20th century. Lithium-ion battery technology became advanced enough to produce EVs at scale in the late 1990s and 2000s, and sales have been steadily increasing since then Tesla’s Roadster was unveiled in 2008. EVs are viewed as a means of reducing carbon emissions since battery electric vehicles (BEVs) themselves produce zero emissions. Other vehicles called plug-in hybrid electric vehicles (PHEVs) utilize both battery electric power and ICEs as a backup.

EVs are growing from a small base, but they rose from 9% of global new auto sales in 2021 to 14% of the total in 2022. This was a 65% YoY growth rate, and the industry delivered 10.2 million EVs worldwide in 2022. Projections show this number climbing above 16 million in 2023. Across the world, market shares differ greatly among nations. Nearly 88% of Norwegian new car sales in 2022 were EVs. On the other hand, the United States, where much of the modern innovation in EVs was forged, had less than 8% of new vehicle sales go to EVs in 2022. The largest EV market in the world, China, saw 30% of the market go to EVs that year.

We know you’re thinking Elon Musk, but he’s probably more like the father of the mass-market, contemporary EV. All the way back in 1827, a Hungarian priest named Anyos Jedlik invented the electric motor and used it the following year to power a vehicle of sorts. French scientist Gaston Planté invented the lead-acid battery in 1859, and German engineer Andreas Flocken built the first true electric car for the public in 1888. EVs made up about 38% of all vehicles sold in the US around 1900. They began losing market share rapidly after 1910 when gasoline-powered vehicles grew much more affordable. They largely died off until new research programs in the 1990s led to gradual private sector investment in the 2000s.

China’s BYD is by far the largest manufacturer of EVs in the world. In 2022 it sold 1.8 million EVs and in the second half of the year made up 20% of the global market. The asterisk given to BYD is that the vast majority of these vehicles are hybrids. Tesla’s 12% market share is often treated as more significant than BYD, because it only sells BEVs and is the most famous EV brand in the world. Volkswagen, BMW and Wuling then round out the top five. As a new sector with heavy investment though, many startups have flooded the market. These include China’s Nio, Li Auto and Xpeng; a Swedish-Chinese manufacturer called Polestar; and Lucid and Rivian from the US.

Tesla stock forecast

Technically, Tesla stock has been in a long-term downtrend since November of 2021, when it last yielded an all-time high. The Wells Fargo downgrade is just the spoiled icing on the cake. The good thing for Tesla bulls, however, is that historical support levels are now nearby. 

The $164 and then $154 levels held up on a number occasions between January and May of 2023. Currently, TSLA is less than 10% above both levels. Additionally, the Relative Strength Index (RSI) is now at 31, just above the accepted oversold level. This means that bulls should be offered a decent entry point in the near future.

TSLA stock daily chart

 

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