Leading electric vehicle company Tesla Inc
According to an analyst, Tesla's full self-driving (FSD) software and potential remain robust.
The Tesla Analyst: Piper Sandler analyst Alexander Potter had an Overweight rating on Tesla and lowered the price target from $225 to $205.
The Analyst Takeaways: Estimates were cut for Tesla by Potter after weaker-than-expected first-quarter vehicle deliveries and a challenging demand outlook in 2024 and 2025.
While 2024 and 2025 could be challenging for Tesla, Potter highlighted the FSD software potential for Tesla.
"TSLA is our lowest-conviction Overweight-rated stock over the next year," Potter said. "However, we still think TSLA warrants a place in clients' portfolios, especially for growth-oriented investors who are eager to take advantage of sell-offs in the coming few quarters."
The analyst saw the long-term optimism is due to FSD software from Tesla, which could have gross margins of more than 50%.
Headwinds for Tesla include slower growth, high interest rates, factory downtime, competition in China and electric vehicle skepticism according to the analyst.
"We think all of these issues will be overcome by 2026, when Tesla's low-cost vehicle, in addition to scaled-up Cybertruck production, will fuel additional delivery growth."
Potter cautioned that before 2026 Tesla could have more delivery misses as compared to consensus estimates. The analyst expected Tesla to have 1.799 million deliveries in 2024, which would be down 0.5% year-over-year.
"Vehicle demand aside, FSD software remains the crux of the TSLA thesis. Even when Tesla's backlog was bursting at the seams, we think it was still impossible to own TSLA without assigning significant value to FSD software," said the analyst.
Potter said the value of FSD could be unlocked in the future. The analyst's price target comes with over half the value related to FSD and a price target of only $80 for the non-FSD components.
"Our forecast assumes Tesla will eventually achieve annual volume in excess of 8M units/year, and that >50% of active Tesla vehicles will eventually be using FSD software."
TSLA Price Action: Tesla shares are down 3.04% to $171.36 on Wednesday versus a 52-week price range of $152.37 to $299.29. Tesla shares are down 7% over the last year and down 31% year-to-date in 2024.
