Singing Short Tesla, JPMorgan Chase: It Will Fall By More Than 40%
Jul 06,2022 | Chloe Lacour
JPMorgan's $385 price target is less than half the market's median price target. It believes that Tesla faces risks in terms of demand, execution, and external competition, but the bigger risk comes from the company's strategy of expanding into lower-priced but more-demanding markets.
Tesla has always been one of the most closely watched and controversial companies on Wall Street.
After Tesla missed its second-quarter delivery expectations, bearish sentiment pervaded the market despite the company's record production in June.
The latest investment bank to cut its price target on Tesla is JPMorgan. Tesla shares could fall more than 40% from current levels, the bank said.
In the research note published Monday, JPMorgan analysts argued:
Tesla faces risks in demand, execution, and external competition, but the bigger risk comes from the company's strategy to expand into lower-priced but more-demanding markets.
The JPMorgan report stated:
We have reason to believe that production and financial results may also be affected by specific execution issues at the company's new plants in Austin, Texas, USA, and Berlin, Germany.
The report downgraded Tesla's to $385 from $395, implying an additional 43.5% drop from Friday's closing price of $681.79.
JPMorgan's $385 price target is well below the market's median price target of $950.
Tesla's stock price has fallen more than 40% this year.
Tesla bull Morgan Stanley warned of lower-than-expected second-quarter production
Tesla said over the weekend that it produced 258,000 vehicles and delivered more than 254,000 vehicles in the second quarter, a 27% increase in deliveries from a year earlier, due to plant suspensions in China and supply chain issues. However, the number of deliveries was lower than the 310,000 vehicles in the first quarter, the first month-on-month decline for Tesla in two years. The figure was also far below market expectations, with Wall Street on average expecting Tesla to deliver 350,000 vehicles at the start of the second quarter.
However, some people have previously made an early warning about the delivery date.
At the end of June, Adam Jonas, an analyst at Morgan Stanley and a traditional Tesla bull, released a report that lowered the delivery forecast to 270,000 units from the previous 316,000 units, a drop of about 14.6%. At the same time, Jonas lowered his price target for Tesla to $1,200 per share from the previous $1,300 per share.
In the first half of this year, Tesla delivered a total of 564,000 vehicles worldwide, a year-on-year increase of 46%. There is still a big gap from Musk's previous delivery target of 1.5 million vehicles.
However, it is worth mentioning that with the recovery of production capacity after the epidemic, June 2022 is the month with the highest car production in Tesla’s history. Tesla said that the Shanghai Gigafactory had recovered 100% of its production capacity in June.
In 2021, the Shanghai plant will deliver more than 480,000 pure electric vehicles to global users, contributing to half of Tesla's global deliveries.
Wall Street cuts Tesla price target Since the end of June, Wall Street investment banks have successively lowered Tesla’s target price.
Mizuho analyst Vijay Rakesh lowered his price target on Tesla to $1,150 a share from $1,300 a share due to concerns about the impact of rising component costs and falling vehicle prices on earnings.
Rakesh expects Tesla's 2022 sales and earnings per share to reach $81.4 billion and $10.74, respectively, down from previous forecasts of $85.7 billion and $13.14.
At the same time, Rakesh also expects Tesla's sales and earnings per share to be $112 billion and $15.49 in 2023, which is also lower than the previous forecast of $114.3 billion and $17.14.
Rakesh noted that he is lowering his forecast for Tesla's performance over the next few years, given persistent supply-related issues such as rising battery prices.
Coincidentally, in addition to Rakesh, Credit Suisse analyst Dan Levy also lowered his target price for Tesla. He believes that higher interest rates will reduce the current discounted price of Tesla's future earnings, so it will be less attractive to investors.