- Despite maintaining an ‘Outperform’ rating on Tesla (TSLA), Baird analyst Ben Kallo lowered his price target from $440 to $370, citing Q1 delivery estimates need to drop from over 400,000 to around 350,000 vehicles due to slower-than-expected Model Y production across Tesla’s four factories.
- Kallo acknowledged that Tesla faces potential demand disruption, particularly in Europe, as negative perceptions around Elon Musk might cause consumers to “think twice about buying a Tesla,” with production issues compounding the demand risk narrative.
- The planned introduction of a lower-priced Tesla model this summer could help address volume concerns but will likely create additional margin pressure and reduce the company’s average selling price, potentially leading to continued volatility throughout the year.
Tesla (TSLA) shares have marked their seventh consecutive week of declines, establishing the company’s longest losing streak on record and making it the worst performer in the S&P 500 (^GSPC) year-to-date. Trading at its lowest level since the election, the electric vehicle giant faces increasing scrutiny from market analysts about its production capabilities and potential demand issues.
Ben Kallo, senior analyst at Baird, recently joined CNBC’s “Squawk on the Street” to discuss his outlook on the $845 billion market cap Tesla. Despite maintaining an ‘Outperform’ rating, Kallo lowered his price target from $440 to $370 per share, citing concerns about first-quarter performance and production challenges with the new Model Y rollout.
“Numbers are too high for Q1,” Kallo explained, highlighting that Tesla sells approximately 300,000 Model Ys per quarter. The slower-than-expected production ramp across Tesla’s four factories has created significant headwinds. Kallo believes Q1 delivery estimates need to come down from the current street expectations of over 400,000 vehicles to around 350,000, with his own estimate sitting at approximately 380,000.
These production issues are compounding existing market narratives about demand problems. When asked whether CEO Elon Musk might be negatively impacting consumer interest, Kallo acknowledged growing concerns: “When people’s cars are in jeopardy of being keyed or set on fire out there, even people that support Musk or are indifferent to Musk might think twice about buying a Tesla.”
Kallo suggested that while it’s too early to definitively determine if Musk is attracting or losing more customers, the production ramp issues will continue to fuel the demand risk narrative. He noted that demand disruption appears particularly plausible in European markets.
Looking ahead, Tesla plans to introduce a lower-priced vehicle in the summer, which could help address some volume concerns. However, Kallo warned that this launch will likely face similar production ramp challenges, perpetuating the demand narrative throughout the year.
The analyst also cautioned that the introduction of a cheaper Tesla model will create additional margin pressure and reduce the company’s average selling price. “It’s going to make it more choppy,” Kallo said, adding that the new vehicle will create “another margin headwind as you ramp it up throughout the rest of the year.”
Despite these near-term challenges, Kallo maintained his overall positive outlook on Tesla. However, he acknowledged the significant uncertainty surrounding the company, noting that while Tesla “sometimes is more of a story stock and trades on the narrative,” financial performance metrics “will matter at some point,” potentially leading to continued volatility in the second half of the year.
For investors, the fundamental question remains whether Tesla’s current valuation – which has seen limited appreciation since joining the S&P 500 over four years ago despite the stock being cut in half from recent highs – appropriately reflects both its short-term challenges and long-term potential in an increasingly competitive electric vehicle market.
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