Tesla: TSLA sinks following Wells Fargo price target cut
- Wells Fargo cuts TSLA price target to $125.
- Tesla stock lost its grip on $170 on Wednesday.
- TSLA is now trading at its lowest level since May 2023.
- Support for Tesla stock arrives soon in the $150s and $160s.
Tesla (TSLA) lost the $170 support level on Wednesday after analysts at Wells Fargo downgraded the electric vehicle (EV) manufacturer to Underweight from Equal Weight. TSLA stock throttled 4.5% lower to $169.48 after the bank cut its price tag from $200 all the way to $125, citing lower demand and growth.
The NASDAQ and S&P 500 also shrank 0.5% and 0.2%, respectively, as Treasury yields rose, while the Dow Jones Industrial Average gained 0.1%
Tesla stock news: Wells Fargo yells ‘sell’, sees TSLA at $125
Wells Fargo analyst Colin Langan placed a sell-equivalent rating on Tesla stock for its perceived expensiveness compared with other tech leaders.
“While an EV & battery tech leader, TSLA screens poorly relative to Mag 7 peers, trading at 58x PE vs. peers at 31x,” wrote Langan, in reference to the Magnificent 7 stocks that include Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META) and Nvidia (NVDA).
Complaining about Tesla’s valuation may seem odd to shareholders as Tesla stock has been trending lower since its July 2023 range high and is now 43% below that level. Furthermore, TSLA stock is now down 59% from its all-time high of $414.50 in November 2021.
Deutsche Bank and Morgan Stanley have both trimmed their price targets on Tesla stock since the start of February — to $218 and $320, respectively — but both houses still have buy-equivalent ratings on TSLA. On Wednesday, Morgan Stanley named Ford (F) its top pick in the automotive industry, citing its continuing profitability from its internal combustion engine (ICE) models.
Besides its issue with the current valuation, Wells Fargo’s main objection is that it’s much more pessimistic about profits over the medium term. Langan admits that his EPS estimates are 32% below the 2024 consensus and 52% below the 2025 consensus.
Alongside Langan’s thesis that price cuts are offering diminishing returns to volume increases, the analyst states, “We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions.”
Also on Wednesday, Swedish EV maker Polestar cut the price tag on the Polestar 3 by 12%, citing lagging demand. Tesla CEO Elon Musk visited the Berlin factory in Wednesday after suffering an attack by environmentalists on the factory’s electricity infrastructure.
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Tesla stock forecast
Technically, Tesla stock has been in a long-term downtrend since November of 2021, when it last yielded an all-time high. The Wells Fargo downgrade is just the spoiled icing on the cake. The good thing for Tesla bulls, however, is that historical support levels are now nearby.
The $164 and then $154 levels held up on a number occasions between January and May of 2023. Currently, TSLA is less than 10% above both levels. Additionally, the Relative Strength Index (RSI) is now at 31, just above the accepted oversold level. This means that bulls should be offered a decent entry point in the near future.
TSLA stock daily chart