Tesla stock could tumble 38% as its growth narrative will slam into weakening demand, Bernstein says

• Analysts at Bernstein set a $150 price target for Tesla stock, indicating 38% downside.
• The company is facing a demand problem due to its narrow and pricey lineup of electric cars.

Tesla's stock is disconnected from its financial realities, according to analysts at Bernstein, who gave the electric vehicle manufacturer an underperform rating and a $150 price target.

Although the company's valuation has climbed over 125% this year, Tesla's earnings per share are roughly 50% where consensus estimates were at the start of 2023, analysts led by Toni Sacconaghi wrote on Friday.

"In our view, Tesla's key challenge is that it has a demand problem due to its narrow (and expensive) product family of essentially 2 vehicles (Model 3 and Model Y)," the note said. "Tesla's lineup is facing a combination of saturation and increasing competition in the EV space, which has necessitated price cuts, pressuring margins."

To stop consumers from gravitating towards EV competitors, Tesla has introduced price cuts that have weighed heavily on margins. In fiscal year 2023, the firm slashed prices by 16% and may have to continue to do so, given that no new high-volume offering is expected until 2026.

Meanwhile, the company's share of the EV space has been slipping, even as vehicle sales have climbed in the third quarter. Now, Tesla's market share stands at a record low of 50%.

"Moreover, the attractiveness and profitability of such an offering is still uncertain," Sacconaghi wrote. "In the meanwhile, Cybertruck's addressable market is small, and we estimate it will be an incremental 100 bps headwind to GMs in 2024."

Bernstein expects Tesla EPS will hit $2.59 next year, well below consensus of $3.34.

Although waning earnings margins did not impact Tesla stock this year, this should change as the growth narrative begins to unwind, Sacconaghi added.

Broadly, many have bought Tesla stock on its early market lead and speculation that it could soon deliver innovations such as full-self driving cars, for instance. But these developments aren't yet on the horizon.

"It's difficult to know when the full self-driving will kick in, but we think it's years and likely multiple years — not only from a technology perspective, but perhaps more importantly, from a regulatory perspective," Sacconaghi told CNBC after the report.

Other forecasts maintain optimism in Tesla's potential. At the end of November, Wedbush Securities' Dan Ives outlined his ongoing outperform rating for the firm, holding a $310 price target.

In his view, the recent launch of the Cybertruck boosted Tesla's growth story, demonstrating continued innovation in the EV space.