Jefferies Lowers 12-Month Price Target for Tesla, Citing Business Model Gaps

Summary

  • Jefferies repeats a Hold rating for Tesla, while slashing their 12-month price estimate to $185.00 from $225.00 post the car maker’s 4Q proceeds release.
  • The 4Q results for Tesla matched expectations, projecting slower growth yet indicating potential dynamic pricing.
  • Major concerns lie in the firm’s lack of a comprehensive strategy that encompasses all business elements, right from new car sales to maintenance and customer retention.
  • It is speculated that a slow growth phase could be beneficial to address these concerns and focus on developing Full Self-Driving (FSD), Dojo, and Optimus to ensure a steady cash flow.
  • Tesla’s 2024/25 volume outlook now sits at 2.03/2.37 million units, incorporating Cybertruck sales and more units from Models 3/Y due to market expansion and improvements. However, the potential earnings from FSD and other projects haven’t been factored in by Jefferies.

Hold Rating on Tesla

Jefferies has reaffirmed a Hold rating on the shares of Tesla (NASDAQ:) while simultaneously reducing their 12-month price projection for the auto manufacturing shares to $185.00, down from $225.00 following the firm’s release of 4Q earnings.

Tesla’s 4Q Results

The 4Q performance of Tesla aligned with forecasts showcasing a lower COGS. Even though sluggish growth was expected, steering clear of fixed volume targets could potentially enable the return of dynamic pricing.

Concerns over Tesla’s Business Model

The main apprehension revolved around the absence of a solid strategy that takes into account all aspects of the business model, primarily selling new cars without covering lifecycle aspects such as maintenance, customer acquisition, and used car values.

Jefferies Analysts’ View

Jefferies analysts raised concerns stating that the real disappointment from last week’s revelatory disclosure wasn’t the glaringly low growth, but rather, the lack of an actionable plan to tackle existing gaps in the business models during this growth slowdown.

Potential Growth

A slower growth period could potentially provide the opportunity to address these gaps, considering the ongoing advancements in Full Self-Driving (FSD), Dojo, and Optimus, which necessitate solid automotive cash flows.

Jefferies’ Forecast

Jefferies tweaked their 2024/25 volume forecast to 2.03/2.37 million units, expecting a +12/17% growth. EBIT margins are projected at 8.5-9.0%, inclusive of benefits from competitors’ slower EV ramps, while the implementation effect of 4680/Dry remains uncertain until 2025.

Projection for 2024/25

For 2024/25, their projection includes an Adjusted EPS at $3.2 and $3.8, with FCF at $6.6 billion, even as capex crosses the $10 billion benchmark.

Tesla’s Pre-Market Trading

In the pre-market trading on Monday morning, TSLA shares have experienced an uptick by 0.93%.

The financial performance of Tesla can have significant implications for forex or trading, particularly for those investing in NASDAQ listed companies and electric vehicle manufacturers.

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