Tesla (TSLA) -) shares edged lower in early Friday trading after analysts at Bernstein published a report that promoted shorting the carmaker's stock as their best investment idea for the coming year.
Bernstein analyst Toni Sacconaghi, who carries an underweight rating with a $150 price target on Tesla, said he saw the potential for 40% downside move in the stock over the next 12 months, citing fading electric-vehicle demand that will likely lead to deeper cost cuts, and increased competition from rivals in key markets, including China.
Sacconaghi sees a "material" decline in near-term delivery and revenue estimates from Wall Street analysts over the coming months, adding that muted growth expectations will weigh on an already expensive stock heading into next year.
“At a fundamental level, 2023 has been a very difficult year for Tesla, with 2023 EPS ~50% below consensus estimates at the start of the year. Yet amazingly, the stock has nearly doubled so far this year,” Sacconaghi wrote. “To stimulate demand Tesla had to dramatically cut price in 2023, and we believe will need to do so again in 2024.”
Tesla shares were marked 0.22% lower in premarket trading to indicate an opening bell price of $242.10 each, a move that would trim the stock's six-month gain to around 2.9%.
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Short interest in Tesla remains elevated
Short interest — measuring bets that a stock will decline in price — in Tesla remains elevated at the highest levels in the world. Investors have placed bets against the group of around $18.63 billion, or 3.03% of the stock's entire float, according to recent data from S3 partners.
Sacconaghi also suggested Tesla's Cybertruck, which it introduced to new buyers earlier this month, will have a limited overall market and ultimately act as a drag on Tesla profit margins as the group ramps production into 2025.
Tesla is also facing demand headwinds that will test its stated goal of delivering 1.8 million vehicles this year. Data earlier this week showed the carmaker posted the biggest slump in China sales in nearly a year.
The China Passenger Car Association said Tesla sold 82,432 vehicles in the world's biggest market last month, up 14.3% from October but down nearly 18% from the year-earlier period, the biggest annual decline since last December.
Sales from BYD (BYDDY) -), meanwhile, were up 31% from a year earlier to a record 301,378 units as Tesla's China-based rival continues to win market share thanks in part to its partnership with Mercedes-Benz.
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