Tesla may be stuck in “production purgatory” that could pressure the stock, according to Redburn Atlantic. The firm initiated coverage of Elon Musk’s electric vehicle maker on Wednesday with a sell rating and a $170 per share price target. That forecast points to nearly 19% downside from Tuesday’s close. Analyst Adrian Yanoshik said the company is contending with broader challenges afflicting the EV sector, including an oversupply of vehicles as well as an increase in capital needs — despite Tesla retaining “its technical leadership in electrical architectures.” “We identify a widening gap between expectations and the margin and [free cash flow] challenges faced by slowing near-term growth,” Yanoshik said. “Pricing — amid increasingly oversupplied EVs — will dominate any margin benefit from lower commodity prices in the coming quarters, in our estimation.” EV sales began slowing in 2023 as consumers and businesses signaled caution toward going fully electric. The trend has continued into the beginning of 2024, with car rental company Hertz announcing earlier in January plans to sell off roughly one-third of its EVs from its fleet. The analyst added that Tesla will continue to focus on growing vehicle volume over margin expansion, while also spending heavily to invest in artificial intelligence and to bring EV capacity up to speed with future new vehicle launches. This will likely add pressure to free cash flow, he added. He also added that efficiency gaps persist between Tesla “and most mass-market and premium brand vehicles, as measured in range per unit of battery capacity,” the analyst said. The companies that will benefit most in the new EV landscape, the analyst added, will “iterate best-in-class EV platforms and scale desirable models to support high utilization at lower unit costs.” Tesla has been in a slump to start 2024, losing about 16%. It has also trailed its “Magnificent Seven” peers including Apple and Nvidia. TSLA YTD mountain Tesla stock YTD The company will report fourth-quarter results after the bell Wednesday, with Wall Street analysts likely focusing on the company’s vehicle deliveries throughout the quarter as well as the Cybertruck’s performance. Analysts polled by FactSet forecast 73 cents per share in earnings on revenue of $25.6 billion.
