What This Downgrade Means for Tesla Stock in the Near Term
Tesla was an absolute market darling going into this coronavirus scare. Since then, it has sold off with the rest of the market, and now it has been downgraded.
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Tesla Inc. (NASDAQ: TSLA) was an absolute market darling going into this coronavirus scare, but since then it has sold off with the rest of the market. Although the future is bright for Tesla, the short term is uncertain. As a result, one independent research firm issued a downgrade on the brainchild of Elon Musk.
Bill Selesky of Argus downgraded the stock to Hold from Buy and dropped the near-term earnings estimates. Essentially, Selesky expects that the coronavirus pandemic will have a negative impact on vehicle deliveries.
Prior to the outbreak, analysts were calling for fairly robust deliveries from Tesla in 2020, as consumers continued to flock to the Model S, Model X and, more recently, the Model 3, which accounted for more than 80% of fourth-quarter production.
Additionally, despite past production delays, parts shortages, labor cost overruns and other difficulties, Argus had expected Tesla to benefit from its dominant position in the electric vehicle industry and to improve performance in 2020 and subsequent years. The firm still thinks that Tesla has strong long-term prospects. However, in the near term, Argus believes that consumers will focus on basic concerns (food, safety, employment and so on) and expects consumer confidence and spending to take a major hit as consumers defer large discretionary purchases.
Argus’s 2020 delivery forecast for Tesla is now 409,000 vehicles, down 19% from the original forecast. The long-term rating remains Buy.
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Selesky further detailed in the report:
We are lowering our 2020 EPS estimate to $5.65 from $8.01 based on the impact of the pandemic and our lower revenue forecast for the year. The consensus is currently $6.65. We believe the consensus will fall as analysts revise their estimates. We are also lowering our 2021 EPS estimate to $12.55 from $15.68, again reflecting the fallout from the coronavirus and our view that vehicle demand (though improving from 2020) will be slow to recover. The 2021 consensus is $13.55.
Tesla stock traded up about 16% on Tuesday, at $502.68 in a 52-week range of $176.99 to $968.99. The consensus price target is $472.90.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
