Tesla Inc.’s stock (TSLA) experienced a significant decline of 12.1% following the release of yet another disappointing earnings report. The company reported a fourth-quarter profit and revenue miss, along with a downbeat 2024 outlook. This continues the trend of sharp one-day post earnings selloffs that have plagued the stock for the past four quarters, resulting in an average drop of 10.2% on those days.
Despite the substantial decline on Thursday, J.P. Morgan analyst Ryan Brinkman argues that the stock has not been punished enough. According to Brinkman, there is still significant downside potential for Tesla’s stock. He maintains his underweight rating on the stock, which he has held for the past three years, and lowers his price target to $130 from $135. This new target suggests a 29% decrease from Thursday’s closing price of $182.63.
As of Friday’s premarket, the stock has experienced a slight rebound of 1.3%.
Brinkman’s main concern is that investors have not been critical enough of Tesla’s strategy to prioritize vehicle sales over profit, resulting in price cuts.
Conclusion
While Tesla’s stock has suffered a sharp decline following its disappointing earnings report, analyst Ryan Brinkman believes that more downside potential remains. Brinkman emphasizes investors’ lack of criticism towards Tesla’s sales-driven strategy and believes that the stock has not yet fully acknowledged the financial concerns. As the market continues to react, it will be interesting to see how Tesla’s stock performs in the coming months.
Automotive Giants vs Tesla: A Unique Perspective
When it comes to traditional automakers resorting to discounts and “dumping” vehicles in rental car fleets to boost sales, they have often faced justifiable criticism. This approach found itself responsible for the steady erosion of residual values of used vehicles, future vehicle margins, and most importantly, brand equity. However, one automaker that seems to have defied this trend and received an unexpected response is Tesla.
Surprisingly, the very action that traditional automakers were condemned for proved to be a significant boon for Tesla. Remarkably, Tesla’s stock experienced a staggering 101.7% surge in 2023, even as the predicted net income for 2024 plummeted by 45% to $13.65 billion from $24.94 billion at the close of 2022, according to FactSet consensus data. In January, these expectations dipped further to $11.35 billion.
An intriguing observation made by Brinkman, an industry expert, is that since October 2022, when Tesla first implemented its price-cutting strategy and maximum profit expectations were set for 2024, the stock has remained relatively unaffected while profit forecasts have substantially dropped by about 60%.
Despite Brinkman’s unique perspective, it is crucial to acknowledge that he stands in the minority on Wall Street. Out of the 49 analysts surveyed by FactSet who provide coverage for Tesla, only seven displayed bearish sentiments. Conversely, 19 analysts remain bullish, and 22 analysts maintain a neutral stance.
Interestingly, the average stock price target among these surveyed analysts sits at $221.25. This projection suggests a promising 23% upside from the closing price on Thursday, signifying a remarkable 70% difference from Brinkman’s target.
Over the past three months leading up to Thursday, Tesla’s stock experienced an unfortunate decline of 11.2%. At the same time, Global X Autonomous & Electric Vehicles ETF DRIV exhibited an impressive gain of 10.1%, and the S&P 500 index SPX demonstrated a substantial advance of 18.3%.
It is clear that Tesla’s unconventional approach continues to captivate investors, even as its profit expectations dwindle. Whether this uniqueness will prove to be a long-term advantage or an uphill battle remains a subject of much debate. As Tesla’s journey unfolds, the future of the automaker will undoubtedly be watched with bated breath by both supporters and skeptics alike.