A longtime Tesla bull slashes its price target by nearly 50% as it sees lower earnings and revenue at the EV maker
- Tesla's price target was cut by 49% to $180 at Jefferies on Tuesday.
- It lowered its valuation estimate after Tesla announced vehicle price cuts last week.
Tesla's price target at Jefferies was sliced by nearly 50% on Tuesday, but the long-time bull said the company's recent price cuts will support a wider goal of making electric vehicles more affordable.
Jefferies slashed its price target by 49% to $180 from $350 a share and maintained its buy rating on the stock.
The new target is 47% above Tesla's closing price of $122.40 on Friday. The shares in 2022 were hammered down by 64%, among the 10 worst-performing on the S&P 500.
Tesla last week made price reductions ranging between 6% to 20% in the US for its Model 3 sedan, its Model Y SUV and various performance models, while also lowering prices in European markets. The moves followed price cuts in China and other markets in Asia to reinvigorate demand.
"Our conviction that Tesla leads the industry towards a better business model is intact although trajectory bumpier than we would like," Jefferies equity analyst Philippe Houchois wrote in a note to clients. "Rebasing earnings is painful but the pricing offensive takes the investment case back to the core mission of leading in affordability and the efficient use of resources."
Jefferies dropped its 2023 revenue estimate by 21% to $99.4 billion and its per-share earnings projection of $3.61 was 17% below consensus.
The firm also reduced its 2023 volume projection for Tesla by about 15% to 1.74 million units, in part as it foresees lower demand for Model 3 and Model Y vehicles.
Tesla's mission is aimed at driving EV adoption and renewable energy, but affordability has become the "key challenge" for the industry, said Houchois.
"The aggressive round of price cuts reverse 2022 price increases and would confirm Tesla has more levers to pull than any OEM given starting margins, capacity and opportunities to leverage growth into cost and revenue management."
Tesla will hold an investor day on March 1, and Jefferies said governance will be in focus.
"Despite correct intuition about recession, affordability and inflation, leadership got side-tracked," Houchois said.
A number of analysts and investors have said Tesla CEO Elon Musk's focus on his $44 billion acquisition of Twitter has been at Tesla's expense. Musk, meanwhile, has blamed the Federal Reserve's interest rate hikes for hurting Tesla's valuation.
What "looks positive at this stage" is the appointment of Tom Zhu as Tesla's chief in China, said Jefferies.
"At the end of a turbulent year with interruptions to the supply chain, we have achieved a partial normalisation of cost inflation, which gives us the confidence to pass this relief onto our customers," a spokesperson for Tesla Germany said last week about price cuts, according to Reuters.