Bernstein advocates shorting Tesla shares

Financial analysts have rated Tesla (TSLA) as Underweight and set a price target of $150 for the stock.

Tesla shares closed with a 1.4% gain on Thursday and have risen 97% since the beginning of the year.

"From a financial perspective, 2023 created significant challenges for Tesla. Earnings per share for 2023 remained approximately 50% below the estimates from the beginning of the year. Despite this, the company's share price has nearly doubled year-to-date," they stated.

Bernstein identifies Tesla's main challenge as a market demand issue stemming from a limited and expensive product lineup, primarily its Model 3 and Model Y vehicles.

Their financial analysis indicates that Tesla's vehicle lineup is approaching market saturation and facing increased competition in the electric vehicle market, which has led to necessary price cuts that impact profit margins.

Financial analysts estimate that this issue will persist and that Tesla will not release a new major vehicle until 2026. They believe the upcoming Cybertruck has a narrow market potential and could negatively impact the company's gross margins by 100 basis points in 2024.

Furthermore, financial analysts believe that profit estimates made in financial markets for 2024 are "too optimistic."

"To increase sales, Tesla had to significantly lower prices in fiscal year 2023, and we believe further price cuts will be necessary in fiscal year 2024," they added.

As Bernstein highlighted, Tesla lowered prices by 16% in fiscal year 2023 to achieve a production increase of approximately 485,000 vehicles compared to the previous year, which created significant pressure of 750 basis points on automotive gross profit margins.

According to the financial analysts' calculations, Tesla is expected to increase production by more than 400,000 vehicles, keep prices relatively stable, and increase automotive gross profit margins by over 200 basis points.

Financial analysts are skeptical of these projections and estimate earnings per share of $2.59 for fiscal year 2024, compared to the consensus estimate of $3.34.

"Given the disconnect between Tesla's financial performance in fiscal year 2023 and its share price, investors might ask 'why now and what will change in 2024?' We believe Tesla's market valuation is supported by growth expectations even though profit margins have weakened," they said.

"We anticipate that delivery and revenue estimates for 2024 and 2025 will be significantly lowered. Although major downward adjustments in earnings per share have not affected Tesla's share price this year, we believe a decline in the growth story could impact the company's price-to-earnings ratio (currently about 75 times 2023 earnings, which is significantly higher than other growth stocks with higher profit margins)."

Tesla shares showed a 0.3% increase in pre-market trading on Friday.

News Source: 12punto