Wells Fargo Analysts Place Tesla on Underweight List for Q4 2024 Amid Concerns of Weakening Demand and Margin Impact
In a recent note, Wells Fargo analysts have placed Tesla on their Q4 2024 Underweight Tactical Ideas list, citing concerns about weakening demand and the negative impact of price cuts on the company's margins. They expect declining delivery growth driven by lower demand for Tesla vehicles, which could further dampen the company's performance in the coming months.
The analysts highlighted that Tesla's strategy of cutting prices to stimulate demand may have diminishing returns, estimating that auto gross margin ex-credits could fall by approximately 400 basis points year-over-year given lower volumes and continued effective price cutting. This bearish view comes as Tesla faces increasing pressure from competitors in the electric vehicle market, alongside economic factors that are weighing on consumer demand.
Wells Fargo maintained an Underweight rating and a $120 price target on Tesla, suggesting a potential 54% downside. They believe that the continued price reductions could have a negative impact on the company's profitability, compounding concerns about Tesla's long-term growth prospects. The bank also sees a risk to Tesla's AI strategy.
This contrasts with a note from Morgan Stanley, which maintained an Overweight rating on Tesla, believing that the development of Generative AI and Large Language Models could unlock significant value for the company, especially in monetizing its AI capabilities.
Overall, investors should be cautious about Tesla's stock in Q4 as it faces challenges in demand and margins. It is important to consider the differing viewpoints of analysts and the potential impact on Tesla's valuation and growth prospects.
