Tesla shares dropped over 4% to around $104 in Wednesday premarket trading — its cheapest since August 2020 — after an analyst at Baird Equity Research lowered its price target for the S&P 500 member.
“We are lowering estimates to be conservative due to recent comments on outlook by Musk and potential for weakening of demand,” said Ben Kallo, Baird senior research analyst, in a note to clients on Wednesday.
Kallo trimmed Tesla’s
price target from $316 to $252 but reiterated an outperform rating.
This is the second price cut in under a week after Wedbush analysts slashed their price target by 30% from $250 to $175 before the Christmas break, citing “demand cracks”, helping make Tesla’s stock suffer its longest losing streak since 2020.
Last week, Evercore analysts cut their price target to $200 from $300, saying “emotional” support for the stock is breaking down.
Kallo lowered Baird’s delivery estimates for Q422 and 2023 to take into account the reports of a slowdown in production in the Giga Shanghai factory in China in January and a weakening macro environment.
He cited the 2008 global financial crisis placing “tremendous pressure” on carmakers, with both General Motors and Chrysler filing for bankruptcy.
The recessionary impact on automobile demand could put pressure on Tesla’s product as consumer discretionary income could be negatively affected. Tesla’s premium vehicle offerings have relatively high average selling points, Kallo pointed out.
He is more bullish than other analysts though, adding that Baird are buyers of the stock and that Tesla is “best positioned in the auto market as EVs continue to take share of the total market”.
Kallo said in the note that despite the Shanghai production slowdown, he believes that Tesla has “many demand levers to pull including an increase in vehicle leasing and additional supercharging incentives”.
He also said that he remained “optimistic” over Musk’s outlook for next year, after Musk vowed in a Twitter Spaces conversation that he wouldn’t sell Tesla stock until 2025.
“We believe this portion of the overhang from Twitter may finally be removed for 2023,” Kallo said.
Tesla stock has plummeted 69% in the year to date, while the S&P 500 index
has declined almost 20% so far this year..