JPMorgan Analyst Explains How His Bank Sees Tesla’s Stock Performing Moving Forward

After a mixed earnings report last week, an analyst reiterates a recommendation for Tesla’s stock.

Buoyed by steady share price increases since the beginning of the year, Tesla  (TSLA) – Get Free Report CEO Elon Musk sounded bullish on the stock during an earnings call Jan. 25.

Having opened the year at $108.10 Jan. 3, shares had closed at $144.43 that afternoon.

The earnings report cited fourth-quarter gross profit margin at 23.8%, short of estimates of 25.4%. The automotive gross profit margin was 25.9%, also short of estimates at 28.4%.

Still, Musk said Tesla’s orders for January were as strong as ever and were twice the rate of global production.

“If it’s a smooth year, actually, without some big supply chain interruption or massive problem, we actually have the potential to do 2 million cars this year,” he said. “We’re not committing to that, but I’m just saying that’s the potential.”

On Jan. 13, Tesla had announced price cuts of between 6% and 20% for its Model 3 and Model X sedans, along with the Model Y crossover.

“Price really matters for EV sales,” Musk said on the call. “I think there’s just a vast number of people that want to buy a Tesla car but can’t afford it.”

JPMorgan Analyst Raises Concerns

The stock hit a year-to-date high of $177.90 on Jan. 27, but was trading down Jan. 30 after a JPMorgan analyst reiterated a sell rating on the stock with a price target of $120.

“Tesla’s softer trend and below-consensus adjusted automotive gross margin comes before the impact of large price reductions that will primarily be felt beginning in the first quarter,” said JPMorgan’s Ryan Brinkman in a client note.  “As such, we view margin trajectory negatively and expect that consensus margin expectations are likely to decline.”

“Although both technology and execution risk seem substantially less than was once feared, expansion into higher volume segments with lower price points seems fraught with greater risk relative to demand, execution, and competition,” Brinkman continued. “Meanwhile, valuation appears to be pricing in upside related to expansion into mass-market segments well beyond our volume forecasts for the Model 3.”

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