Tesla stock has risen too quickly this year due to a host of uncertainties surrounding the electric vehicle maker’s business, said JP Morgan analyst Ryan Brinkman.
“Tesla’s softer trend and lower-than-consensus adjusted automotive gross margin comes before the impact of significant price cuts that will be felt primarily from the first quarter,” Brinkman said in a new client note. “As such, we view the trajectory of margins negatively and expect that consensus margin expectations are likely to decline.”
Brinkman reiterated an underweight (sell equivalent) rating on Tesla shares. His $120 price target on Tesla assumes a 32% decline from current levels.
Tesla shares fell slightly in premarket trading on Monday. The stock is up around 44% so far in 2023.
“While the technology and execution risks appear to be significantly lower than once feared, expanding into higher volume segments with lower prices appears to carry higher risk relative to demand, fulfillment and competition,” added Brinkman. “Meanwhile, valuation appears to be on the upside driven by expansion into mass market segments well beyond our Model 3 volume forecast.”
The bearish rating on Tesla comes after the company announced a mixed — at best — outlook for the fourth quarter and full year last week.
Tesla’s fourth-quarter gross profit margin came in at 23.8%, below estimates of 25.4%. Automotive gross profit margin came in at 25.9%, versus analyst estimates of 28.4%.
During the conference call with investors, Tesla CEO Elon Musk did his best to sound enthusiastic about Tesla’s business. He also addressed demand issues, saying, “So far in January, we’ve seen the largest orders in our history to date.” At the same time, however, he warned of a “severe” recession this year.
The economic warning appears to have been factored into Tesla’s 38% volume growth forecast for 2023, which fell below a longer-term target of 50%.
Not everyone on the street is in Brinkman’s camp on Tesla: Berenberg analyst Adrian Yanoshik raised his rating on Tesla to buy-hold, citing “misguided” pricing issues.
Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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