Tesla Stock Takes a Hit After Analyst Downgrade

Shares of electric vehicle manufacturer Tesla (TSLA) are facing significant challenges as the trading week begins. As of 10:17 a.m. ET, the stock has fallen approximately 8.3%. The decline follows an announcement from a prominent Wall Street analyst reducing the stock's price target while keeping a sell rating.

Analyst Downgrades Price Target

Joseph Spak from UBS has decreased his price target for Tesla from $259 to $225. At this point, Tesla shares are trading around $240. This downgrading is partly due to a reduction in expected deliveries for the first quarter, which Spak revised from an initially estimated 437,000 units to just 367,000. This new estimate indicates a potential 26% decrease in quarterly deliveries and a 5% drop compared to the same time last year.

Furthermore, Spak anticipates that this lower delivery number will negatively affect Tesla's gross margin in the automotive sector, projecting a drop of 330 basis points from the previous quarter, potentially bringing margins down to 10.3%, excluding regulatory credits. This is a notable decrease from the first quarter of 2024 when the margin was reported at 16.4%.

Ongoing Concerns About Demand

This isn't the first time analysts have flagged worries regarding Tesla's performance in the first quarter. Several analysts have reported a significant decline in sales in Europe, especially in January, even as the overall electric vehicle market remains on an upward trajectory. Additionally, reports from the China Passenger Car Association (CPCA) indicate that Tesla's sales in China have also struggled.

Stock Volatility and Market Conditions

Following a major surge in its stock price after the election of former President Donald Trump in November, Tesla has now seen a complete reversal of those gains. This indicates that the stock may have been overvalued, with investors leaning more on optimistic projections rather than solid foundational factors.

In the current market landscape, companies like Tesla, which carry high evaluations, are particularly at risk. Currently, the stock trades at around 85 times its expected earnings, signaling that this dip may not be the best entry point for new investors at this time.

Bram Berkowitz has no position in any of the stocks mentioned.

Tesla, Stocks, Analyst