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Tesla Stock Faces Challenges in 2024

3 Mins read

The trajectory of Tesla stock has been the subject of much debate and speculation this year, and it seems that the controversy will persist into 2024. While bullish investors remain optimistic about the stock’s potential for growth as sales continue to rise and new products enter the market, there are those who express concerns about its valuation and competition.

One analyst, Bernstein’s Toni Sacconaghi, has taken a more skeptical view of the electric vehicle leader’s prospects for the coming year. Sacconaghi rated Tesla stock as “Sell” since July 2020, a period during which the shares have actually soared by approximately 150%. His bearish sentiment has remained steadfast despite the stock’s ascent. In 2020, he downgraded the stock from “Hold” when it was valued at around $100 per share. At that time, his price target was set at $60 per share. However, since then, the share price has surged to its current level of $150.

Sacconaghi still maintains his negative outlook for Tesla, even with its continuing upward trajectory. In a recent report attached to a Bernstein client conference call, he asserted that the company is grappling with a demand problem. According to Sacconaghi, Tesla’s product lineup is too limited, expensive, and oversaturated.

While Tesla is indisputably a luxury brand and enjoys a dominant position in U.S. luxury electric vehicle sales, accounting for about 60% of total sales in the third quarter, Sacconaghi frets about market saturation. In order to prop up demand amid rising interest rates, Tesla aggressively slashed its prices in 2023. The analyst predicts that Tesla will once again have to lower prices in 2024 to maintain demand stimulation.

A more affordable electric vehicle could certainly help address these concerns, although Sacconaghi does not anticipate such a model arriving until 2026.

“We believe that Tesla will disappoint on both units and revenues and earnings per share in 2024, and are notably below consensus,” Sacconaghi added in his report. He projects earnings per share of $2.59 in 2024, significantly lower than the Wall Street consensus estimate of $3.87.

The current consensus implies that Tesla stock is trading at approximately 63 times its projected 2024 earnings. In comparison, Sacconaghi’s more conservative EPS estimate puts the shares at a multiple of 94, highlighting the discrepancy between their perspectives. Additionally, his price target of $150 represents a valuation of around 60 times his own earnings estimate.

Co-founder of Future Fund Active ETF and Tesla shareholder, Gary Black, recognizes that Tesla’s 2023 and 2024 earnings estimates were significantly reduced by approximately 40% in 2023. However, Black remains optimistic about 2024. According to him, “Tesla should continue to rally as investors gain more confidence in Tesla’s automotive gross profit margins hitting rock bottom.”

In the third quarter, Tesla’s automotive gross profit margin (excluding regulatory credit sales) dropped by about 10 percentage points to approximately 16% year over year.

Moreover, Black believes that the introduction of the Cybertruck in November will enhance Tesla’s brand, potentially leading to increased sales of the Model 3 and Model Y. On the other hand, Sacconaghi considers the Cybertruck to be a “niche product.”

Sacconaghi predicts Tesla will deliver 2.1 million units in 2024, while the Wall Street consensus stands at 2.2 million. However, Black has a more bullish projection of 2.4 million cars sold.

As always, the bulls and bears on Wall Street rarely see eye to eye.

This discrepancy is also reflected in price targets. The highest target prices on Wall Street average around $350 per share, while the lowest targets average around $100. With a bull-bear spread of $250, which is more than 100% of the current price, Tesla far surpasses Apple’s spread of about 50%.

Contrary to Sacconaghi’s more bearish outlook, ‘s recommended Tesla stock in January 2023. At that time, they believed that the stock was undervalued due to Elon Musk’s acquisition of X, the former Twitter, and the decrease in Tesla vehicle prices. Since then, Tesla’s shares have performed exceptionally well, more than doubling in value.

Although Tesla stock is no longer trading in the low-$100s, there is some hesitation in adding to positions. However, ‘s would not short Tesla stock, as they acknowledge that it is the leading producer in a rapidly growing industry and remains profitable. Moreover, Tesla possesses other avenues for generating value, such as self-driving cars and utility-scale battery storage applications. At the very least, they are content with maintaining a “market weight” position in Tesla stock. Currently, Tesla accounts for approximately 2% of the S&P 500.

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