Sometimes stock prices going up are the catalysts for Wall Street downgrades.
That’s the case for EV leader Tesla (ticker: TSLA). It’s been getting it right on its pricing, production, and technology. That’s pushed shares higher and made them less attractive, according to
UBS
analyst Patrick Hummel.
He downgraded
Tesla
stock to Hold from Buy on Monday, while raising his price target to $270 from $220. The shares were down 1% to just above $260 each in premarket trading.
S&P 500
and
Nasdaq Composite
futures were both up about 0.2%.
Tesla stock raced past Hummel’s old price target in June. Deals with auto makers opening up the Tesla supercharging network to non-Tesla electric vehicles, as well as enthusiasm about artificial intelligence, helped shares gain 28% that month. (Tesla uses AI to train its autonomous driving features.)
The good news was used by other analysts in a similar manner. Hummel’s downgrade is the fifth since mid-June.
Analysts want to take some profit. Coming into Monday trading, Tesla stock is up about 111% so far this year. Still, shares are only up roughly 10% since Hummel upgraded Tesla stock to Buy in June 2022. Back then the analyst was encouraged by the operational outlook, calling it stronger than ever.
He still likes the company, just not the stock price. “We continue to see Tesla globally leading the race to affordable electric and autonomous mobility, but on a one-year view, risk/reward looks balanced,” Hummel wrote.
Tesla’s recent second-quarter earnings report dispelled some of his concerns about margins and validated the company’s price cuts.
Tesla cut prices aggressively in January 2023. That hurt profitability. In the first quarter, gross profit margins in Tesla’s car business (excluding regulatory credits) came in at 18.8%, down from 24.3% in the fourth quarter of 2022. Margins dipped again in the second quarter, but only by a small amount. What’s more, all the price cuts boosted volume. Tesla delivered about 423,000 vehicles in the first quarter and another 466,000 in the second. Both quarterly records for the company when reported.
What Tesla needs to boost margins from here is progress on self-driving technology. Tesla is charging $15,000 for its Full Self Driving, or FSD, autonomous driving software. But cars truly driving themselves—which will push adoption of the software—is still years away, according to the analyst.
With the new downgrade, about 40% of analysts covering the stock rate shares Buy, down from about 64% at the start of 2023. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
The average analyst target price 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 [email protected] and Al Root at [email protected]
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