Tesla's drop of over 20% at the beginning of the year is not enough? JPMorgan Chase warns of another 30% drop, while Wedbush cuts its target but still predicts a significant increase.

The sharp decline this Thursday has pushed Tesla's cumulative decline since the beginning of 2024 to over 20%. A recent report by JPMorgan Chase predicts that Tesla may experience even further declines this year.

In the report released on Friday, January 26th, JPMorgan Chase analyst Ryan Brinkman warned that Tesla's stock price has significant downside potential. This is because the company's price reduction strategy has eroded profits and failed to significantly increase revenue.

Brinkman pointed out that while Tesla's deliveries in the fourth quarter increased by 20% compared to the previous year, actual revenue from its automotive business only grew by 1% YoY. He believes that Tesla's price war has sacrificed profits without generating substantial revenue growth, but instead has resulted in increased sales volume.

According to FactSet data, Tesla's current trading price is 56 times the consensus earnings forecast for 2024. JPMorgan Chase is concerned that the stagnant revenue growth of Tesla cannot justify its current valuation.

Brinkman's report stated that Tesla's profit expectations have declined, and even with the sell-off on Thursday, this stock is still not attracting attention from JPMorgan Chase. This implies that there is "significant further downside potential" for the stock price.

JPMorgan Chase pointed out that in October 2022, Wall Street analysts predicted Tesla's profit for 2024 to be $28.5 billion, but this expectation has since dropped significantly. Currently, analysts expect Tesla's operating profit for 2024 to be $11.4 billion. Therefore, Brinkman's report mentioned that Tesla's current stock price is roughly the same as it was in October 2022, but since then, analysts' profit expectations for Tesla in 2024 have declined by 60%.

In the report, Brinkman maintained a low rating for Tesla and lowered the target price for the next 12 months by $5 to $130, a decrease of 3.7%. This target price suggests that Brinkman expects Tesla's stock price to fall another 28.8% by the end of this year based on Thursday's closing price.

Brinkman believes that Tesla's differentiated business, attractive products, and cutting-edge technology are offset by "above-average execution risk and valuation." Moreover, the pricing seems to have already reflected many of these factors. The risks in technology and execution for Tesla appear to be much lower than previously feared. However, the risk of expanding into higher-volume segments of the automotive market at lower prices seems to be greater than the risks in demand, execution, and competition.

After the market closed on Wednesday, Tesla released its fourth-quarter earnings report, which showed a year-on-year decrease in earnings per share (EPS) of 40%, and revenue growth slowed down to 3%, lower than expected for the fourth consecutive quarter. This is the first annual profit decline in seven years for Tesla. At the same time, Tesla warned that the production growth rate in 2024 will be significantly lower than in 2023.

According to Wall Street CN, Tesla did not provide delivery targets for this year in its earnings report, which is considered unusual. Tesla has set a long-term average annual growth target for its deliveries at 50%. Analysts predict that Tesla will sell 2.2 million vehicles in 2024, an increase of about 20% compared to 2023. However, if the growth slows down to a certain extent, the room for price reduction will also disappear.

On the first trading day after the earnings report was released, Tesla's stock price fell more than 10% at the opening, and eventually closed down 12%, marking the largest daily decline in a year. As of the close on Thursday, the stock price has fallen by 26.5% since the beginning of 2024.

It is worth mentioning that Brinkman is an analyst who has been bearish on Tesla for a long time. According to FactSet, out of the 49 analysts who follow Tesla, only seven have a pessimistic view, while 19 are bullish and 22 are neutral. The average target price given by these analysts is $221.25, which is about 21% higher than Tesla's Thursday closing price and about 70% higher than Brinkman's target price.

On the same Thursday, Dan Ives, a star analyst at Wedbush who is known for his long-term optimism about Tesla, also expressed disappointment with Tesla. He significantly lowered Tesla's target price by 10%, from $350 to $315.

Ives said that the disappointing earnings conference call shook his confidence in the company's recent performance. In his report, Ives compared Tesla's post-market conference call on Wednesday to a "train derailment" accident, saying, "We expected Musk and the team to stand up like adults on the conference call and provide strategic and financial overviews of the ongoing price cuts, profit structure, and demand fluctuations, but we were completely wrong."

Ives also likened Tesla's price cuts to a recent "Category 4 hurricane" and wrote that during the conference call, Tesla CEO Musk lacked communication and guidance, which "was a bitter pill for the bulls to swallow."

Nevertheless, Ives still believes that Tesla's long-term prospects are intact, and the era of widespread adoption of electric vehicles by the masses is coming. Ives maintains an "outperform" rating on Tesla and has raised his target price by about 51.6% from Wednesday's closing price and 72.5% from Thursday's closing price.According to the report, Wedbush's confidence in Tesla has been shaken recently, "but we still firmly believe that the long-term bull case around Tesla and the broader artificial intelligence (AI) narrative will stand firm." For Musk, this is a crucial moment for Tesla to overcome difficulties and it will help shape the future of electric vehicles.