Tesla (NASDAQ:TSLA) shares have rallied this year after plunging in 2022. The electric vehicle maker’s stock is up over 54% year-to-date, fueled by the company’s fourth-quarter results and improved sentiment about growth stocks. While several analysts remain bullish about Tesla, there are some who feel that persistent macro pressures could limit the upside potential from current levels.
Tesla Navigating Challenging Conditions
Tesla delivered better-than-expected fourth-quarter results despite supply chain disruptions in China. Overall, the company’s revenue increased 51% to $81.5 billion in 2022, while net income more than doubled to $12.6 billion. Tesla addressed investors’ concerns about demand and assured that the company is well-equipped to navigate through short-term uncertainty, helped by its cost control measures.
During the Q4 earnings call held in January, CEO Elon Musk stated that the company was seeing orders “at almost twice the rate of production.” Tesla’s deliveries increased 40% to 1.31 million in 2022. Production grew 47% to 1.37 million. The company expects to produce 1.8 million vehicles this year.
Tesla has been slashing prices aggressively to boost demand. It has ignited a price war in the EV space, which has become very competitive. Earlier this month, Tesla cut prices on Model S and Model X to spur demand.
The company’s decision to slash prices seems to be fetching the desired results. According to the European Automobile Manufacturers’ Association, registrations of Tesla EVs in the European Union jumped almost 50% to 19,249 vehicles in February. Further, the company’s share of the “BEV [Battery EV]–fully electric vehicle” market increased to 19.8% in February 2023 compared to 18.5% in the prior-year quarter.
Based on a recent survey, UBS analyst Patrick Hummel expects 26% global EV penetration in 2025 and 51% in 2030, compared to 12% in 2022.
“In a market that is no longer supply constrained, technology and cost leadership have become more important than ever, and we think Tesla is clearly best positioned to win as it fully controls all the mission-critical levers in-house,” said Hummel.
Hummel expects Tesla to “gap away further” in volume and profitability compared to its peers following the launch of Cybertruck this year and the expected introduction of its cost-efficient third-gen platform in 2025. He reiterated a Buy rating on Tesla with a price target of $220.
Unlike Hummel, not all analysts are bullish on Tesla. This month, analysts at KGI Securities, Berenberg Bank, and Wolfe Research downgraded Tesla to Hold from Buy. While Wolfe Research analyst Rod Lache acknowledges Tesla’s “impressive cost trajectory,” he has turned “incrementally more concerned about macro challenges.”
Is Tesla a Buy, Hold, or Sell?
Wall Street is cautiously optimistic on Tesla, with a Moderate Buy consensus rating based on 20 Buys, 10 Holds, and three Sells. The average TSLA stock price target of $212.89 suggests nearly 12% upside from current levels.
Tesla bulls continue to believe in the company’s ability to win more market share in the EV space and improve its profitability through cost cuts. However, some analysts are concerned about the impact of growing macro pressures. They fear that following a strong rally so far this year, the upside in Tesla shares might be limited over the near term due to a potential economic downturn.