Tesla Analyst Says Risk-Reward On The Stock Is More Balanced Now But…

Zinger Key Points
  • Tesla has underperformed the broader market in the year-to-date period.
  • Weakening Chinese demand has cast a cloud on volume growth as well as margins, Bernstein says.
Tesla Analyst Says Risk-Reward On The Stock Is More Balanced Now But…

Tesla Inc. TSLA is among the worst-performing large-cap stocks this year as multiple headwinds — both external and internal — to the company weigh down on the stock.

The Tesla Analyst: Bernstein analyst Toni Sacconaghi Jr. has an Underperform rating and $150 price target for Tesla shares.

The Tesla Thesis: With Tesla shares pulling back about 41% since the start of October and 48% year-to-date, the risk/reward on the stock is more balanced now, although still somewhat negative, Sacconaghi said in a note.

The principal driver of the recent pullback has been investor concern about softness in demand, particularly in China, and the associated growth versus margin tradeoff, the analyst said.

See Also: Tesla Institutional Investors See This As Major Reason Behind Stock's Underperformance, Morgan Stanley Survey Reveals

CEO Elon Musk’s Twitter acquisition has also contributed to investor concerns, added Sacconaghi.

Despite the 5-9% price cuts announced by Tesla for its Model 3 and Model Y vehicles in China, lead times have not budged; they remain at 1-6 weeks, the analyst noted.

Tesla delivers only a fraction of other larger OEMs’ volume but it is valued more than all those OEMs combined, Sacconaghi said. Tesla's valuation per vehicle delivered works out to $617,000 compared to $18,000 per car for the top seven automakers combined, he added.

Notwithstanding the balanced risk/reward, the analyst said he is wary of Tesla’s elevated absolute valuation and increasing risk of downward revisions amid potential demand challenges.

“We also worry about the potential for broader market pressure amid slower consumer spending, which would likely impact higher valuation stocks such as TSLA disproportionately,” he added.

Price Action: Tesla closed Tuesday’s session at $180.83, down 1.14%, according to Benzinga Pro data.

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