Tesla Gets Fresh Downgrade; Analyst Questions If Big Profits Were ‘Structural’ Or Temporary

Tesla (TSLA) stock has plummeted in April, accelerated by last week’s first-quarter financials showing gross margins have retracted more than expected.  On Wednesday, another analyst downgraded Tesla stock, hinting the global EV giant may need a “reset” and raising questions whether huge Tesla profits were temporary.

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An Jefferies analyst on Wednesday dropped the firm’s rating for Tesla to “Hold,” down from “Buy.” Analyst Philippe Houchois also cut his Tesla stock price target to 185, down from 230.

“We cut our rating to Hold pending a reset of performance and possibly governance,” Houchois wrote.

Houchois added Tesla’s strategy of growth over margin has its “logic and resets expectations.” However, it also poses a question whether its profit edge was structural or a timing difference, according to the analyst.

In other words, Tesla’s outsized margins in prior years may have reflected reduced overall auto production due to the Covid crisis and now-waning chip shortages.

“Tesla is stepping up the transition to a world of sustainable energy and resource efficiency. The process is chaotic, may slow down EV penetration and accelerate profit normalization for the industry,” Houchios wrote.

Jefferies slightly trimmed 2023 forecasts for Tesla revenue, profit margins, deliveries and free cash flow.

Tesla traded rose a fraction Wednesday during premarket trade. The stock fell 1.2% on Tuesday to 160.67.

Downgrade Follows Price Target Revisions

The move by Jefferies follows many firms dropping TSLA share price targets late last week in reaction to Tesla first-quarter earnings.

Wedbush analyst Daniel Ives, a longtime Tesla bull, maintained an “Outperform” rating on Tesla stock and trimmed his price target to 215 from 225.

Meanwhile, Morgan Stanley analyst Adam Jonas revised the firm’s Tesla stock price target to 200 from 220. Jonas kept an “Overweight” rating on TSLA.

RBC Capital analyst Tom Narayan lowered the firm’s price target on Tesla to 212 from 217, while keeping an “Outperform” rating on Tesla stock. Citigroup (C) joined the other firms, revising its Tesla stock price target to 175 from 192.

Citigroup trimmed its price target based on how Tesla’s margin miss “confirms”  vehicle price cuts were not offset to the extent previously expected. Analyst Itay Michaeli expects the stock to pull back and says an entry point in the near-term requires more conviction on demand.

Wells Fargo (WFC) maintained an “Equal Weight” rating on Tesla stock while adjusting its price target to 170, from 190. Deutsche Bank (DB) on Thursday also whittled its TSLA share price view to 200, down from its previous 250 target.

Tesla Stock

Tesla stock plunged 10.8% last week to its worst levels since late January. Most of the decline came Thursday, after Tesla reported its gross margin dived more than expected and Elon Musk signaled more declines could be coming.

TSLA stock has fallen more than 22% in April.

Tesla stock no longer has a base. If Tesla rebounds it could form a double-bottom base with a 207.89 buy point, according to MarketSmith analysis.

Tesla sits fifth in IBD’s Auto Manufacturers industry group. TSLA has a 65 Composite Rating out of 99. The stock has also has a 24 Relative Strength Rating. The EPS Rating is 92 out of 99.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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