Tesla (NASDAQ:TSLA) shares might still be down by 28% year-to-date, but the losses have been narrowing recently. Since the release of the Q1 report just over two weeks ago, the stock has climbed 23% higher.
Bernstein analyst Toni Sacconaghi attributes the apparent shift in sentiment to several factors. While Q1 deliveries were dire, the margins were not as bad as expected. Additionally, CEO Elon Musk hinted at the prospect of new, cheaper models. Then there was Musk’s visit to China, which resulted in a mapping partnership with Baidu and a path for Tesla’s full self-driving (FSD) software to be used in the country.
However, despite the recent positive developments, Sacconaghi keeps his bearish stance intact.
“We do not believe Tesla can grow units in 2024 without taking a serious hit to free cash flow, and that any new models will likely be modifications to existing models,” the analyst said when mulling over the stock’s recent trajectory.
On autonomy in China, the landscape “remains very competitive.” XPeng and Huawei have both been making their own FSD-like offerings free, with Sacconaghi noting that his first-hand experience is that these companies’ products’ abilities match those of Tesla’s FSD (Level 2+). And not far behind them, local EV players like Li and NIO are lurking too. “The functionality is often given away for free, and so we suspect Tesla may face low attach rates for FSD at its current level of pricing, and don’t see it as a material catalyst for sales in China,” Sacconaghi said on the subject.
The big debate on Tesla still revolves around the question whether it is a car maker or a tech company. Sacconaghi thinks Tesla initially considered itself an auto firm with cutting-edge manufacturing, battery, and engineering expertise, targeting a dominant market share. However, due to fierce competition within the sector, it seems that management is shifting its strategy towards distinguishing itself by pioneering FSD technology and Robotaxis.
All in all, Sacconaghi rates TSLA shares an Underperform (i.e., Sell), while his $120 price target implies the shares are currently overvalued to the tune of 33%. (To watch Sacconaghi’s track record, click here)
The Street’s take is a bit more positive though hardly bullish. Based on 15 Holds, 9 Sells, and 8 Buys, the analyst consensus rates TSLA a Hold. Going by the $173.29 average price target, a year from now, the shares will be changing hands for ~3% discount. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
