Analyst reveals new Tesla price target with focus on undervalued business unit

Feb 5, 2024

Updated at 10:32 AM EST

Tesla (TSLA) – Get Free Report shares extended their recent run of declines Monday, which have lopped more than $230 billion from the EV maker’s market value so far this year, after another Wall Street analyst questioned the group’s near-term profit path.

Tesla has lagged its Magnificent 7 peers for much of the past six months thanks in part to a risky strategy that prioritizes market-share gains over improving profits. The strategy has been driven by a series of price cuts across key markets in the U.S., Europe and China.

The Roundhill Magnificent Seven ETF, which trades under the ticker symbol MAGS, has risen nearly 12% so far this year, while Tesla shares are down nearly 25%. Meta Platforms (META) – Get Free Report, whose CEO Mark Zuckerberg was challenged to a cage match last year by Tesla’s Elon Musk, is up nearly 40%.

Tesla’s profit margins, probably the most closely tracked metric by analysts on Wall Street, narrowed to 17.6% over the three months ended in December. That’s as a result of the price cuts and, alongside a weaker-than-expected bottom line of 71 cents a share, added more fuel to those betting against the world’s biggest EV maker.

Piper Sandler: ‘aging product lineup’ at Tesla

Piper Sandler analyst Alexander Potter, meanwhile, sees more price cuts ahead thanks to what he calls an “aging product lineup.” He also trimmed his 2024 delivery estimate by around 11.5%, to 1.93 million units, following the group’s disappointing fourth- quarter earnings, reported last month.

Tesla’s net income doubled from fourth-quarter 2022 to $7.9 billion, but a good chunk of that was tied to a deferred tax gain of $5.9 billion. Costs linked to artificial-intelligence projects and the delayed Cybertruck pickup-truck launch ate deep into its bottom line.

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The group also said that 2024 growth rates, in terms of vehicle deliveries, would be “notably lower” than 2023 levels. Wall Street forecasts indicate 2024 revenue growth would likely come in at 10%, indicating a full-year total of around $107 billion.

Potter, meanwhile, lowered his price target on Tesla by $70, to $225 a share, while reiterating his overweight rating. The analyst cited the potential revenue generation from its growing energy business, which he sees contributing around 12% to top line growth in 2025, twice the 6% of last year.

Potter values Tesla’s automotive division, excluding its Full-Self-Driving driver-assistance system, at around $135 a share, with the rest of his $225 target tied to Tesla energy.

Tesla’s energy division, which sells energy-storage and solar-energy systems, saw overall fourth-quarter revenue rise 10% from 2022 levels to around $1.31 billion. The full-year tally was just over $6 billion, a 54% gain from 2022 levels.

“Tesla is poised to capture 15% to 20% of global stationary battery deployments,” Potter said.

Related: Tesla tumbles as Musk’s ‘train wreck’ call fails to gloss over profit slump

Musk: Tesla is ‘between 2 growth waves’

Musk himself told investors last month that Tesla is “currently between two major growth waves,” with “Full-Self-Driving, next-gen vehicle and energy storage” powering the group’s next advance.

“Our energy-storage business had another record year with deployments more than doubling and revenues increasing by more than 50%,” said Vaibhav Taneja, Tesla’s new chief financial officer, on last month’s conference call.

“This business is poised to again surpass our auto business in terms of growth rate in 2024,” he added. “This has been in the works for quite some time with us laying the foundation a few years back by building our Mega Factory in Lathrop.”

Tesla shares were marked 4.9% lower in early Monday trading to change hands at $178.65 each, a move that would extend the stock’s 2024 decline to around 28%.

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