Tesla stock (NASDAQ:TSLA) has been shrugging off the global economic fears battering markets. Shares of the electric vehicle company have increased by more than 20% in the previous three months, while the S&P 500 has declined by about 5% in the same time period.
One of Wall Street’s most vocal critics of Tesla Inc (NASDAQ:TSLA) is standing by his position. This may put pressure on the EV manufacturer’s top and bottom lines.
In a research note published on Wednesday, Itay Michaeli of Citi maintained a sell recommendation on shares of Tesla (NASDAQ:TSLA). The stock price dropped by more than two percent before the market opened.
The relatively strong result is a reflection of the confidence around new government laws that will encourage the deployment of electric vehicles in 2023 and beyond. Investor confidence in Tesla stock has risen as a result of the company’s successful performance over the first two quarters of the year. This sentiment took a little knock in August as a result of a broader market drop.
Michaeli, on the other hand, is of a different opinion. The following is a rundown of the reasoning for his call:
Aiming for a price of $141.33 (reiterated)
Rating: Sell (reiterated)
Assumed fluctuation of the stock price: -50 percent
As economic constraints continue to grow, Michaeli is revising his production projections for Tesla’s third quarter and highlighting the possibility that the company may have a dismal fourth quarter.
“As a result of the production ramp at Shanghai, we now expect to deliver 369.8k units during the third quarter, down from the previous estimate of 398.5k units. The robust demand we anticipate for the third quarter is factored into our expected deliveries, but we have left some wiggle room for timing-related production and delivery variations. There might be more variation than typical in the delivery statistics for Quarter 3 due to several manufacturing ramps this quarter and a high emphasis on September volume.
Our forecast for 2022 deliveries remains unchanged at around 1.4 million units, as we consider the difference between our initial estimate and our Q3 forecast mostly due to scheduling issues. Production is continuing to ramp up into the fourth quarter. We believe that the macro scenario, particularly in Europe, poses some danger to the statistics for the fourth quarter.”
Michaeli thinks that Tesla Stock / Shares are still expensive in the market.
“Our perspective is informed by a risk/reward analysis, which considers the most likely outcomes for both autonomous vehicles and software. Based on the major data points we are watching now, we believe that future bull case predictions look overly optimistic (Tesla selling around 20 million units by approximately 2030 and shortly gaining L4 RoboTaxi leadership). We have a positive outlook on Tesla’s strong position in the electric vehicle market and, particularly, the company’s improved execution over the past several years. Despite this, we have a greater degree of skepticism regarding the company’s FSD/AV strategy, which we consider to be an essential component of the entire risk/reward analysis because we have a bullish outlook on the AV opportunity as a whole.”
Michaeli provided a list of reasons why an upgrade on Tesla shares (NASDAQ:TSLA) would be warranted.
“If we started to see indicators that demand is commensurate with the story that’s being told right now.
If Tesla’s margin performance (excluding credits) were to experience a considerable and persistent expansion, this would support the company’s maintaining a sustained edge in the market.
Announcements of forthcoming products connected to the “Car of the Future” (Model Y, etc.).
Given the competition in the sector for new TAMs associated with future cars, there is the possibility of collaborating with or even being purchased by a big technology firm eager to enter new TAMs associated with mobility services.
If the results of the remaining or most recent legal investigations are more favorable.
If the effect of the risks mentioned above turns out to be more than we estimate, the price of the shares may end up being higher than the target price that we have set.”
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