Tesla (NASDAQ:TSLA) shares were recently downgraded by Wolfe Research from “Outperform” to “Peer Perform.” The analysts remained optimistic about the company’s long-term opportunities, but they also shared concerns about potential macro headwinds that the EV maker might be facing.
“We’re still convinced of Tesla’s impressive cost trajectory, which should propel impressive growth over time. However, we’ve also become incrementally more concerned about macro challenges. Tesla has already had to cut prices quite a bit more than we expected. And we worry that macro challenges are intensifying in ways that could disproportionately affect US EV makers,” the analysts noted.
The Wolfe analysts referenced the collapse of Silicon Valley Bank (SVB), which could adversely affect companies like the electric vehicle maker. As the analysts noted, California is still a large market for Tesla, with the state comprising a substantial portion of the United States’ overall electric car sales last year.
“One example is the continued downturn in the Tech Sector, potentially now exacerbated by the implosion of SVB (While Deposit-holders will be made whole, this was an important bank for this ecosystem… and we don’t expect this hole to be filled immediately. Credit is likely to tighten). We’d note, for example, that California accounted for ~1/3 of US EV sales in 2022 (41% for TSLA). And the tech industry accounts for roughly 20% of California’s economy.
“We believe there’s risk that tech spending will slow down even faster, and there will be larger layoffs. W/r/t Tesla and Auto stocks, we don’t believe that a precise view on the macro outcome is possible at this point in time. Autos are durable goods, and their purchases are deferred when consumers feel less financially secure. Recent events further deepen the uncertainty for the Tech Sector, Startups, Financial Institutions, and many non-Tech California businesses,” the analysts noted.
Wolfe further mentioned that it has “heard anecdotes of weaker demand for EVs (from LCID, RIVN, and others)” and that the situation could get worse if sentiment takes another hit. The firm also noted that Tesla stock is trading about 6% off its price target, which was set at $185 per share.
Disclosure: I am long TSLA.
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