Tesla (NASDAQ:TSLA) shares might have gotten a bit of a bounce recently, but the stock is still down by 27% this year and sits 38% below its 52-week peak. While that pullback is representative of how sentiment has changed around the EV leader, for investors who aren’t overly concerned about volatility and are more focused on the medium-to-long-term, one particular Street analyst thinks now might be the right time to pull the trigger.
Cantor’s Andres Sheppard thinks that against a turbulent backdrop, Tesla still has plenty going for it. He notes, “While the EV industry has been going through several challenges (supply chain disruptions, near-term slowdown in demand, and increasing competition from Chinese OEMS), we believe Tesla benefits from future upside from its Full Self-Driving (FSD) software (plus upcoming Robotaxi segment), the introduction of lower-priced models, a global manufacturing footprint with economies of scale, and the industry’s largest Charging Infrastructure.”
Accordingly, Sheppard initiated coverage of TSLA stock with an Overweight (i.e., Buy) rating and $230 price target, implying shares will post growth of ~28% over the next 12 months. (To watch Sheppard’s track record, click here)
Sheppard is particularly bullish on Tesla’s FSD (full self-driving) software. The system is expected to get a roll out in China, following CEO Elon Musk’s surprise visit to the country which resulted in the company being allowed to use Baidu’s mapping and navigation on Chinese roads. Since revenue from China represented 22% of total revenue in 1Q24, that’s quite a big deal. Sheppard is also encouraged by Tesla recently lowering its FSD subscription purchase price from $12,000 to $8,000, while it also reduced its monthly subscription fee to $99/month (from $199). These cuts, says the analyst, will help spur demand for the product. Additionally, the technology could potentially be licensed to other OEMs.
Talking of spurring demand, that is something Tesla’s mooted lower-cost vehicles should be able to do. The exact timeline for a cheaper vehicle hasn’t been given yet, but the car is expected to cost around $25,000. Sheppard believes it will not only help to “boost additional EV customer demand,” but could put additional pressure on rivals, particularly the companies with negative gross margins.
Margins have been partly to blame for The Tesla story souring over the past year. While they have been declining due to a series of price cuts, Sheppard notes Tesla’s gross margins are still “amongst the highest” in the auto industry.
“We believe TSLA’s margins remain an important differentiator, and should allow for greater flexibility on pricing (relative to competitors). Also, these margins could improve over time with the implementation of FSD software,” the analyst went on to say.
Turning now to the rest of the Street, where Sheppard’s bullish take doesn’t sit all that well with most of his colleagues. While 6 other analysts join him in the bull camp, with an additional 16 Holds and 9 Sells, the analyst consensus rates the stock a Hold (i.e. Neutral). Moreover, the $171.99 average target factors in a one-year decline of 4.5% from current levels. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
