Wells Fargo Places Tesla on Underweight Tactical Ideas List

Investing.com — Wells Fargo analysts placed Tesla (NASDAQ:TSLA) on their Q4 2024 Underweight Tactical Ideas list in a note released Tuesday, citing concerns about weakening demand and the negative impact of price cuts on the company’s margins.

Wells Fargo noted expectations of “declining delivery growth driven by lower demand” for Tesla vehicles, which they believe could further dampen the company’s performance in the coming months.

The analysts highlighted that Tesla’s strategy of cutting prices to stimulate demand may have diminishing returns. They estimate that “auto gross margin ex-credits fall by ~400bps y/y given lower volumes and continued effective price cutting.”

This bearish view comes as Tesla faces increasing pressure from competitors in the electric vehicle (EV) market, alongside economic factors weighing on consumer demand.

Wells Fargo pointed to these challenges, which they believe will result in significant downside risk for Tesla’s stock in Q4. The report emphasizes that continued price reductions could negatively impact the company’s profitability, compounding concerns about Tesla’s long-term growth prospects.

Wells Fargo maintained an Underweight rating with a $120 price target on Tesla, suggesting a potential 54% downside. The bank concluded that it remains cautious on Tesla’s valuation compared to the other Magnificent 7 stocks, seeing risks to its AI strategy.

Wells Fargo’s assessment contrasts with a note from Morgan Stanley on Tuesday that maintained an Overweight rating on the electric vehicle giant. Morgan Stanley analysts indicated they believe the development of Generative AI (Gen AI) and Large Language Models (LLMs) could be a “great unlock” for Tesla’s value, particularly in monetizing its AI capabilities.

The report from Wells Fargo includes Tesla alongside Ulta Beauty (NASDAQ:ULTA) as part of their Underweight Tactical Ideas, suggesting these stocks could face downward pressure due to various sector-specific challenges.