Tesla (TSLA) shares extended their recent declines in early Wednesday trading, pushing the stock to its lowest since last May, after a key Wall Street analyst suggested the carmaker is likely to lose money this year.
Tesla's broader woes have been well documented over the past three months as the stock has underperformed both its Magnificent 7 tech peers and the broader equity benchmarks, amid fading EV demand prospects and a continuing price war among Tesla's global competitors.
Tesla in fact is one of the worst performing stocks in the S&P 500 so far this year, falling nearly 30% against the benchmark's 7.7% gain and shedding more than $230 billion in value along the way.
Morgan Stanley's Adam Jonas, one of Wall Street's most respected analysts and a longtime Tesla bull, says things could get even worse.
"Could Tesla lose money this year?,” Jonas asked in a client note that underscored the group's demand challenges and price-cutting strategies.
Jonas lowered his price target on the group by $25 to $320 a share but he affirmed his overweight rating.
Tesla profit in focus as challenges mount
“We believe Tesla has significant attributes to be valued as an [artificial-intelligence] beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first,” Jonas wrote. "If there was ever a time for Tesla to potentially post a GAAP EBIT, it may be this year.”
In January Tesla itself warned investors that vehicle-delivery growth rates would be "notably lower" than 2023 levels, with earnings likely to decline given its focus on price cuts, which narrow the profit margin it squeezes from each car it sells.
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Tesla's profit margins, probably the most closely tracked metric by analysts on Wall Street, narrowed to 17.6% over the three months ended in December, down from a 23.8% margin over the year-earlier period.
Weaker-than-expected sales figures from China, where volumes fell to the lowest levels in more than a year last month, are also adding to overall pressures on Tesla's aggressive delivery targets.
Fading EV demand highlights margin pressure
Jonas lowered his own 2024 delivery forecast by around 4%, to 1.998 million units, and sees a gross profit margin of just 11.4% once the impact of regulatory credits is removed.
“EV demand continues to decelerate despite continued price cuts," Jonas wrote. "Fleets are dumping EVs and strong hybrid momentum is competing for the marginal EV buyer."
Jonas has argued that Tesla is valued at more than its current market price based on the host of other business dynamics tied to EV sales, including the licensing its Full-Self-Driving driver-assistance system as well as its battery, energy and insurance divisions.
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He also says Tesla's DoJo supercomputer, which is powered by AI technologies, could add more than $500 million to Tesla's market value "through a faster adoption rate in mobility [robotaxis] and network services [software as a service]."
For now, however, those attributes are likely to be clouded by Tesla's auto-related challenges, adding to pressure on the stock price.
“We do not believe Tesla will get credit as an Al company as long as core auto earnings are being revised down," Jonas said. "This process may take a few more quarters to see through, over which time our $100 bear case may be ‘in play.'"
Tesla shares were marked 3.55% lower in early Wednesday trading to change hands at $174.40 each, a move that extends the stock's six-month decline to around 31%.
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