Analyst puts Tesla stock on key ideas list as Q2 deliveries loom

Tesla shares have lost nearly $170 billion in value this year amid a global slump in electric-vehicle demand and a major strategy shift from CEO Elon Musk.

Jul 1, 2024 - 19:30

0 8

Analyst puts Tesla stock on key ideas list as Q2 deliveries loom

Updated at 9:45 AM EDT

Tesla shares jumped in early Monday trading ahead of the group's highly anticipated second quarter delivery figures, even as a key Wall Street analyst suggested the stock has more room to move lower following a tough start to the year.

Tesla (TSLA) , which is navigating a big decline in global EV demand, increasing competition from China-based rivals and narrowing profit margins tied to a series of price cuts, will publish its Q2 delivery figures on Tuesday July 2.

The group cautioned earlier this year that overall deliveries in 2024 would be "notably lower" than they were in 2023. Last month Tesla dropped a reference to its goal of delivering 20 million vehicles each year by 2030.

A broader strategy shift, described by CEO Elon Musk as "blindingly obvious," could also see the carmaker focus on developing a fleet of autonomous robotaxis, while exploiting the power of its AI supercomputer, over its traditional carmaking roots.

Elon Musk won a key shareholder vote on a $56 billion pay deal last month but has seen Tesla shares lose nearly $170 billion in value this year.
Marc Piasecki/Getty Images

Wells Fargo, however, added the stock to its Tactical Ideas list on Monday, while affirming the underweight rating from analyst Colin Langan, as the investment firm braces for another disappointing quarter for overall deliveries.

"Price cuts and financing promotions have shown diminishing returns on volume," Wells Fargo analysts said in a note published Monday. They lowered their 2024 delivery tally to around 1.55 million units, "[an about] 14% year-on-year decline, and [about] 13% below" the Wall Street consensus.

Wells Fargo sees more demand, margin pressures

"Lower deliveries and price cuts are driving ~44% year-on-year earnings deterioration in 2024," the bank added. "Concerns remain about Model 2 demand and margin profile for a smaller, mass-market vehicle."

Langan held his $120 Tesla price target in place as well. The stock's place on the list was characterized as a bearish idea.

Tesla's second-quarter deliveries aren't likely to assuage those concerns either, with LSEG data suggesting an overall tally of 438,019 units, a 6% decline from the year-earlier period.

That would also mark the first time on record that Tesla has produced two consecutive quarters of declining deliveries. And that trend could continue into the second half as Musk focuses on his robotaxi-launch event in August and his longer-term ambitions to transition Tesla into an AI-market leader.

Musk has said the group could launch a new-vehicle lineup later this year or in early 2025, although he noted that Tesla will likely use current production facilities "as well as aspects of the next-generation platform."

That likely means Tesla won't be able to launch the lower-priced EV that investors have been hoping for, adding to the pressure on the group's profit margins.

However, Musk also told investors in April that "I think we'll have higher sales this year than last year."

Tesla's China sales hit by competition

China sales, however, have also been flagging, with data from the Passenger Car Association noting that April and May figures are around 12.2% south of levels seen in 2023. That's thanks to increased competition from rivals such as Nio (NIO) and Warren Buffett-backed BYD. (BYDDY)

Wedbush analyst Dan Ives, however, thinks a "mini rebound" in June could help Tesla's overall China tally and bring the group's overall second-quarter delivery total "close to [Wall Street's] 435,000 units estimate."

But Ives, who maintained an outperform rating and $275 price target in a note published Friday, is focused on Tesla's transition story over its chasing of delivery targets in a muted EV market.

"We continue to believe that Tesla is more of an AI and robotics play than a traditional car company," Ives said, adding that market attention is expected to shift firmly toward the robotaxi unveiling slated for Aug. 8.

More Tesla:

"While delivery numbers next week are very important, [Wall Street] is starting to focus on the next growth driver at Tesla now forming, with the worst of the demand doldrums in the rear-view mirror ... heading into the second half," Ives said.

"Ultimately the key to reaching a $1 trillion+ valuation is the autonomous and [Full-Self-Driving] vision taking hold for Tesla, which appears to be turning a corner with this latest FSD v12.4 and now China FSD testing underway," he added.

Tesla shares were marked 4.05% higher in early Monday trading to change hands at $205.98, a move that would still leave the stock down around 17% for the year.