Tesla (TSLA) stock has surged during the first half of the year, causing a number of analysts to tip the electric car maker’s rally toward all-time highs.
Late Sunday, Goldman Sachs analyst Mark Delaney became the third Wall Street analyst to downgrade Tesla in less than a week.
Delaney downgraded Tesla from Buy to Neutral while increasing the price target from $185 to $248. Delaney’s move reflects a common theme in the cuts: Tesla stock has done well and it’s hard to see doing it better to close out the year.
“We believe the stock now better reflects our positive long-term view of the company’s growth potential and competitive position after the significant move higher year-to-date,” Goldman Sachs analyst Mark Delaney wrote in a note on Monday.
Morgan Stanley’s Adam Jonas put it simply: “I haven’t seen a 111% rally year-to-date.” It’s an understandable position from Jonas after 2022 saw Tesla shares drop nearly 70% as its CEO Elon Musk bought the social media company, and the EV maker began losing market share to rivals.
Even Dan Ives, managing director of Wedbush Securities, an old Tesla bull, entered 2023 skeptical. He lowered his price target from $250 to $175 on December 22, 2022 and wrote in a note: “At the same time that Tesla cuts prices and inventory begins to grow globally in the face of a possible global recession, Musk is seen as ‘sleeping at the wheel’ of A Leadership Perspective for Tesla”.
In the first six months of the year, sentiment in favor of Tesla plummeted. The company made multiple price cuts that the street deemed necessary to stimulate demand, and fourth-quarter results came in better than expected.
Then came a new CEO at Twitter, several supercharged licensing partnerships, and an AI boom in stocks. All combined to send shares of over 100% in the year.
Bulls like Ives are back to drumming, and I recently wrote that the EV automaker has built an “EV fortress,” referring to growing revenue tracks like a supercharger network that now includes partnerships with major competitors like Ford (F), General Motors (GM) and Rivian. (RIVN).
But some analysts question the sustainability of some of the current growth drivers. Morgan Stanley’s Jonas highlights that positive AI-related stock movement could be a concern.
“While we understand why Tesla gets such a serious mention in the conversation about artificial intelligence, we think the reassessment on this topic is in the realm of the irrefutable bull case,” Jonas wrote. “Autonomous driving and generative AI are still, in our view, two very different technical areas. While the market may want to dream up the topic of AI, we are preparing to wake up to the sound of a screeching car horn.”
Barclays analyst Dan Levy agrees with Jonas that the AI narrative is likely a long way from Tesla stock. Levy downgraded Tesla from overweight to equal weight on June 21.
“While we’re not surprised the stock is participating in the rally, we think it would be wise to move to the sidelines,” Levy wrote.
He points to the main fundamental factors that affected the stock before the AI surge, such as margin concerns amid price cuts.
Investors will be looking for more hints of how Tesla’s demand will respond to those price cuts during the upcoming holiday week. Tesla usually announces quarterly deliveries for the second quarter on July 2nd.
After delivering 422,875 cars in the first quarter, Wall Street analysts expect Tesla to deliver 448,599 deliveries for the second quarter, according to Bloomberg consensus data.
Josh is Yahoo Finance Correspondent.
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