What Does The Recent String Of Tesla Price Target Cuts Suggest?

Zinger Key Points
  • Tesla stock is trading at 10-month lows, mainly reflecting the production issues at Giga Shanghai.
  • At least four analysts have lowered their price targets for the stock, with the reduction ranging between 6% to 30%.

As Tesla, Inc. TSLA stock tumbled to a 10-month low, bullish sell-side analysts who had rallied behind the company and saw it as one waiting to explode began to backtrack.

Some of them still remain committed to their Buy ratings but have tempered their expectations concerning the electric vehicle stock's trajectory.

The following are the recent downward Tesla price target adjustments from analysts. 

Daiwa Securities analyst Jairam Nathan reduced the price target from $1,150 to $800, a 30.4% cut. The analyst maintained an Outperform rating.

Wedbush analyst Daniel Ives lowered the price target from $1,400 to $1,000, down about 28.6%. The analyst maintained an Outperform rating.

Piper Sandler analyst Alexander Potter stayed at Overweight but reduced the price target for shares from $1,260 to $1,035, down about 18%. This represented a back-to-back cut following a downward revision from $1,350 in April.

Wells Fargo Securities analyst Colin Langan lowered the price target from $960 to $900, down 6.25%. The analyst has an Equal-weight rating on the stock.

Related Link: How Much Wealth Did Elon Musk Lose In This Week's Tesla Stock Rout?

Shanghai At Front, Center Of Price Target Cuts: Giga Shanghai's importance to Tesla can't be emphasized enough. The company's China manufacturing plant has delivered volumes at better margins, a function of the affordable manpower available in the country.

It therefore comes as no surprise to see analysts pumping the brakes amid the three-week shutdown of the plant in April and a subsequent slow ramp. Daiwa's Nathan attributed his price target cut primarily to the uncertainty around Tesla hitting its 50% volume growth target in 2022.

The analyst expects said he expects a production loss of 70,000 units in the second quarter and another 35,000 units in the third quarter.

Citing the impact of the Shanghai lockdown and the slower ramp-up expected at Giga Texas and Giga Berlin, the analyst now models deliveries of 1.2 million for 2022, representing 30% growth.

A Wedbush analyst termed the Shanghai situation as an "epic disaster." The firm expects softness in deliveries in the June quarter and a slower growth trajectory in China in the second half.

Meanwhile, Wells Fargo's Potter based his action on COVID-19-related weakness in China and fixed cost deleveraging.

As outlined by Daiwa's Nathan, Tesla is facing other risks as well. The uncertainty surrounding Tesla CEO Elon Musk's deal to buy Twitter, Inc. TWTR will pose risks to the stock trajectory, he said.

Related Link: Should Tesla Initiate A Buyback Amid Stock Slump? Here's What One Of Its Biggest Shareholders Thinks

Tesla's Bull-Bear Debate: Following the recent sell-off, Tesla backers have suggested the stock weakness presents an attractive buying opportunity. The company has a few second-half catalysts capable of lifting the sagging stock. These include a potential stock-split announcement and the AI Day scheduled for mid-August.

The average analyst price target for Tesla, according to TipRanks, is $937.45, suggesting scope for roughly 50% upside from current levels. From a technical standpoint, the 14-day relative strength index of the stock is at 35 — a level consistent with oversold condition.

The blow dealt by the Shanghai shutdown can't be brushed aside, and the global economic outlook is far from encouraging. Consumer confidence has plummeted, dragged by inflation worries and fears concerning monetary policy normalization. This will begin to manifest in consumer purchasing. 

Tesla, though it is considered to be more than an electric vehicle company, has no option but to fall back on its mainstay car-making business. For Tesla stock to plot a turnaround, it has to show evidence that production plans are back on track.

TSLA Price Action: Tesla shares were trading 2.45% higher at $643.55 Wednesday morning, according to Benzinga Pro data.

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