‘Hold Off,’ Says Barclays About Tesla Stock

After surging past $260 a share in the final few weeks of 2023, shares of Tesla (NASDAQ:TSLA) have had a great fall in 2024. Since the calendar flipped, shares of the world’s foremost electric carmaker have lost a depressing 15%.

That’s a surprising result given that the company outperformed a lot of its EV peers in reporting (earlier this month) that in 2023, it grew deliveries of its vehicles even faster than it grew production – 38% to 35% – which seems to imply there’s till strong consumer demand for Tesla EVs.

But not all analysts are convinced that Tesla will be able to maintain this dynamic as the New Year progresses. In a note published Wednesday, Barclays analyst Dan Levy warns that 2024 may see “a pivot to demand constraints” on Tesla’s growth.

While Levy generally holds a positive outlook for the automotive industry’s growth in the coming year, the analyst adopts a more conservative stance regarding Tesla. He rates the company’s stock as Equal Weight (i.e. Neutral), and has adjusted his price target downward by 4% this week, setting it at $250 per share. (To watch Levy’s track record, click here)

Admittedly, $250 is a price 18% above where Tesla stock trades today. Given this, you might think that Levy would be optimistic about the stock. And yet… he’s not.

So why not?

Well, waning demand for EVs in general, and for Teslas in particular, is one reason. After growing deliveries 38% in 2023, Levy thinks Tesla will only grow deliveries about 9% year over year in 2024 – a number he calls “a far cry from the 50% CAGR target set out by Tesla several years ago.” Part of the reason for this waning demand is that governments in Germany, in France, and especially in the United States seem less willing this year to finance the growth of electric car companies with generous subsidies.

“In the US, Tesla lost IRA tax credit eligibility (a $7,500 benefit) for most of its Model 3 trims at the end of 2023,” observes Levy – and 30% of the cars Tesla sells in the U.S. are Model 3s.

And at the same time as it gets more difficult for Tesla to sell EVs, it’s getting even harder to earn a profit on them. Competitors – and Tesla itself – are cutting prices on electric cars, after all. And the lower prices go, the slimmer profit margins become.

Adding to these price pressures is Hertz’s decision to unload 20,000 EVs from its rental fleet this year. That’s a flood of new, deeply discounted (albeit used) EVs being dumped on the market. A flood nearly equivalent in number to 1% of all EVs currently on the roads in America.

All things considered, between growing sales less quickly and also earning less on those cars it manages to sell, Levy predicts Tesla will report only $3.02 per share in profit this year – less than the $3.10 per share it earned over the last 12 months, and much less than the $3.80 per share that Wall Street, on average, predicts for Tesla’s earnings today.

And if that’s the way things play out, it means investors in Tesla stock today are looking at a stock trading for 70 times forward earnings, and probably with a negative earnings growth rate to boot. If you ask me, Tesla’s getting off easy with only an “equal weight” rating from Barclays.

All in all, the market’s current view on TSLA is a mixed bag, indicating uncertainty as to its prospects. The stock has a Hold analyst consensus based on 13 Holds, 11 Buys, and 5 Sells. However, the $245 price target suggests an upside potential of nearly 15% from the current share price. (See TSLA stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.