Tesla stock has risen too fast this year based on numerous uncertainties around the EV maker's business, JP Morgan analyst Ryan Brinkman argues.
"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," Brinkman said in a new client note. "As such, we view margin trajectory negatively and expect that consensus margin expectations are likely to decline."
Brinkman reiterated an Underweight (sell equivalent) rating on Tesla shares. His $120 price target on Tesla assumes 32% downside from current levels.
Shares of Tesla dropped slightly in premarket trading on Monday. The stock is up about 44% so far in 2023.
"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 added. "Meanwhile, valuation appears to be pricing in upside related to expansion into mass-market segments well beyond our volume forecasts for the Model 3."
The bearish note on Tesla comes after the company reported a mixed — at best — fourth-quarter and full-year outlook last week.
Tesla's fourth-quarter gross profit margin came in at 23.8%, short of estimates of 25.4%. The automotive gross profit margin clocked in at 25.9%, compared to analyst estimates of 28.4%.
A Model S sedan undergoes a water test at the Tesla auto plant in Fremont, Calif. Tuesday, June 12, 2012. (Patrick Tehan/Staff) (Photo by Patrick Tehan/MediaNews Group/Bay Area News via Getty Images)During the earnings call with investors, Tesla CEO Elon Musk did his best to sound enthusiastic about Tesla's business. He also addressed demand concerns, stating: "Thus far in January we have seen the strongest orders year to date ever in our history." At the same time, however, he warned of a "severe" recession this year.
The economic warning appears to have been baked into Tesla's 2023 volume growth guidance of 38%, which fell below a longer-term target of 50%.
Not everyone on the Street is in Brinkman's camp on Tesla: Berenberg analyst Adrian Yanoshik upgraded his rating on Tesla to Buy from Hold, citing "misguided" pricing concerns.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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