Such is the case for the electric car leader Tesla (ticker symbol: TSLA). They got it right in terms of pricing, production, and technology. That sent stocks higher and made them less attractive, according to UBS analyst Patrick Hamill.
He downgraded Tesla stock to Hold from Buy on Monday, while raising its price target to $270 from $220. Shares fell 1% to just over $260 each in pre-market trading.
Standard & Poor’s 500
And
NASDAQ Composite
Futures rose about 0.2%.
Tesla stock surpassed Hummel’s old price target in June. Deals with automakers to open up Tesla’s supercharging network to non-Tesla electric vehicles, as well as enthusiasm about artificial intelligence, helped send shares up 28% that month. (Tesla uses artificial intelligence to train its self-driving features.)
Other analysts have used the good news in a similar way. Hamill’s cut is the fifth since mid-June.
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Analysts want to take some profits. As Monday trading approaches, Tesla stock is up about 111% so far this year. However, shares have only risen 10% since Hummel upgraded Tesla stock to a Buy in June 2022. At the time, the analyst was encouraged by the operating outlook, calling it stronger than ever.
He still loves the company, not just the share price. “We continue to see Tesla lead the race globally for affordable electric and autonomous mobility, but from one overall perspective the risk/reward looks balanced,” Hamill wrote.
Tesla’s recent earnings report for the second quarter allayed some of his concerns about margins and endorsed the company’s price cuts.
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Tesla cut prices significantly in January 2023. This has hurt profitability. In the first quarter, gross margins in Tesla’s car business (excluding regulatory credits) were 18.8%, down from 24.3% in the fourth quarter of 2022. Margins fell again in the second quarter, but only by a small amount. Moreover, all the price cuts boosted the volume. Tesla delivered about 423,000 vehicles in the first quarter and another 466,000 vehicles in the second quarter. Both quarterly records of the company when reported.
What Tesla needs to increase margins from here is advances in self-driving technology. Tesla charges $15,000 for its full self-driving, or FSD, program. But cars that truly drive themselves — which will drive adoption of the program — are still a long way off, according to the analyst.
With the new rating downgrade, about 40% of analysts covering stock price shares are Buy, down from about 64% at the start of 2023. The average Buy rating percentage for stocks in the S&P 500 is about 55%.
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The average analyst price target for Tesla stock is about $244 a share, down from about $255 a share at the start of the year.
Write to Adam Clark at adam.clark@barrons.com and Al Root at allen.root@dowjones.com
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