Tesla's "buy" rating is less than half! What is Wall Street worried about?
Since Tesla released its financial report on April 19th, the average target price of analysts has dropped from $202 to around $189.
Wall Street is losing confidence in Tesla, and "elasticity" of prices is the new concern.
Decreased effectiveness of price cuts
Jefferies analyst Philippe Houchois downgraded Tesla's stock rating from "buy" to "hold". He lowered the target price from $230 to $185.
Tesla has cut global car prices multiple times in 2023 to help drive growth. These cuts have been effective, as Tesla's market share in Q1 increased compared to Q4 of last year.
Houchois believes there is ample reason to pursue higher sales at the cost of lower prices and profit margins. However, he still has concerns. He believes that the demand growth brought by lower prices has not shown enough price "elasticity."
Elasticity varies with time and different price levels. Ultimately, the impact of further price cuts on sales will become smaller and smaller. This is his concern about Tesla.
Bernstein analyst Toni Sacconaghi also raised the issue of "elasticity" in a report. However, he did not downgrade Tesla's rating. He has already rated the stock as "sell" with a target price of $15.
Less than half of the ratings are "buy"
Tesla's stock price has recently taken a heavy hit, falling about 11% since Tesla released its earnings report.
Since Tesla's earnings report on April 19, Houchois has downgraded the rating for the third time. According to FactSet data, this is also the seventh time since the end of February that the rating has been downgraded from "buy."
Analysts initially appreciated Tesla's price cuts, but were more concerned that further price cuts would mean a demand problem.
"During this period, the average target price of analysts researching Tesla's stock has fallen from around $202 to $189," according to the report.
Currently, less than 50% of analysts researching Tesla's stock choose to buy. The average buy rating ratio for S&P 500 index constituents is about 58%. At the beginning of 2023, the buy rating ratio for Tesla's stock was about 65%.
Pricing strategies, profit margins, and analyst sentiment fluctuations have caused Tesla's stock price to soar this year.
