Tesla Stock Downgraded by Wells Fargo, Target Price Cut 51%

Wells Fargo has downgraded its rating for Tesla (TSLA.US) stock from "neutral" to "underweight" and significantly reduced its target price to $130, marking a 51% decrease from the previous closing price of $268.46. This move comes as the bank's star analyst, Colin Langan, and his team have been consistently predicting a slowdown in Tesla's delivery growth and anticipating that price cuts will impact the company's profit margins. Consequently, Tesla stock has been added to Wells Fargo's tactical ideas list, indicating a potential for further decline.

The report underscores several challenges facing Tesla. With the penetration rate of electric vehicles in the U.S. and Europe nearing saturation and intensified price wars from domestic brands in China, Tesla is struggling to find effective short-term measures to stimulate sales. Additionally, the report warns that if the Biden administration reduces the $7,500 electric vehicle tax credit in the second half of the year, demand could be further suppressed.

Tesla's global price reduction strategy, aimed at countering competition, is backfiring on its profits. The bank predicts that earnings per share (EPS) for 2025 will plummet by 25% year-over-year, with the gross margin potentially falling below the critical 20% support level. This is a significant drop from the 31% historical high recorded last year, highlighting the financial strain Tesla is under.

The report also raises sharp questions about Elon Musk's highly anticipated Robotaxi autonomous ride-hailing service. The Autopilot system, which relies solely on visual solutions, has significant safety flaws. Additionally, the Cybertruck, being mass-produced at the Austin Gigafactory, has faced multiple delivery delays. Langan emphasized that if a commercial fleet cannot be assembled by June, market confidence could be severely damaged.

Despite Tesla's stock price surging 6.2% on Tuesday, it has still plummeted 37% year-to-date, erasing nearly four-tenths of its value from the $488.54 all-time high reached last year. This volatility reflects the market's growing concerns about Tesla's future prospects and its ability to navigate the current challenges.