Here’s what analysts are expecting from Tesla earnings

Published Wed, Jan 24 202411:04 AM ESTUpdated Wed, Jan 24 202412:30 PM EST

Analysts are largely cautious on Tesla — and the broader autos industry — ahead of the electric vehicle company's earnings on Wednesday. Shares of Tesla have lost 15% in January, beginning the year on a far different note than last year's blockbuster performance. Analysts have begun to doubt the stock's high valuation, particularly as Tesla grapples with price cuts, increasing competition from other automakers — particularly in China — and high borrowing costs, among other issues. Tesla's poor performance so far this year has also dragged down investor sentiment on the "Magnificent Seven" batch of technology stocks. TSLA 1Y mountain Tesla shares over the past year. After the Magnificent Seven posted outsize returns last year, some investors have been worried that the group will see a pullback amid a broadening market rally, taking away its clear market leadership. This week, the mega-cap tech stocks are hovering around the flatline, with Tesla being the laggard. Here's what analysts from several major firms expect from Tesla's earnings this week: Bank of America According to Bank of America analyst John Murphy, Tesla should see a strong finish to 2023 due to U.S. sales, an increase in global electric vehicle production and solid pricing, as well as fewer price cuts during the fourth quarter. But soured sentiment on electrification in the fourth quarter might weigh on EV expectations, Murphy wrote in a Monday note. He added that the outlook for production volumes should "be key with consensus expectations for a flat-to-slightly down 2024." His $290 price target implies 38.7% potential upside for shares from Tuesday's close. Upside risks include a sustained rise in gas prices, a breakthrough in advanced battery technology and better cost containment, among others. Downside risks include an inability to keep raising low-cost capital and generate positive earnings and free cash flow, Murphy mentioned. Wells Fargo The firm is downbeat on the EV maker, forecasting fourth-quarter earnings of 59 cents per share while consensus expectations are calling for 72 cents per share. "Tesla screens the most at risk," analyst Colin Langan wrote in a Jan. 16 note. He holds an equal weight rating and $223 price target on the stock, suggesting shares could add 6.6% over the next 12 months. Langan upped his year-end earnings per share estimate to $3 from $2.95, however, to reflect Tesla's record-breaking delivery of roughly 485,000 vehicles during the fourth quarter. Morgan Stanley Morgan Stanley slashed its price target on Tesla, but is still among the most bullish firms when it comes to the EV maker. Citing a challenging year ahead for EVs, analyst Adam Jonas cut his price target by $35 to $345 ahead of the company's earnings. That suggests nearly 65% potential upside. "Rather than wait for what we expect to be a clearly cautious outlook for FY24, we wanted to mark-to-market our FY24 and FY25 estimates ahead of time," he wrote in a Monday note. "There is continually growing evidence that the global EV market is in an unfavorable balance of supply (growing) vs. demand (slowing)." Given Tesla's auto market share, Jonas said poor developments in the global EV market "very much matter" to Tesla and could hurt the price of its stock. Jonas noted that Tesla is both an auto stock, as well as an energy and artificial intelligence and robotics company, and that his valuation of the company's core auto business is just 22% of his price target. His overweight rating on the stock is more dependent on its value as an AI company, he pointed out. Deutsche Bank Deutsche Bank Research sees downside risk to Tesla's 2024 volume and margin outlooks. Analyst Emmanuel Rosner said this risk is "due to much lower volume outlook than the market assumes, pricing pressure, Cybertruck margin impact, and higher tax rate in China." Rosner said he expects a roughly 6% price decline this year amid global demand constraints, and also considering that the Tesla's Model 3 Rear-Wheel Drive and Model 3 Long Range models no longer qualify for tax credits. The analyst rates Tesla stock a buy with a $260 price target. UBS UBS thinks shares of Tesla have a negative setup this year. Like other analysts, the firm is also cautious on 2024 guidance for U.S. autos and auto parts. "Units will be guided to 2.1mm (UBS at 2.0mm, consensus 2.17mm). Higher units likely require more price cuts," analyst Joseph Spak forecast about Tesla's earnings in a Jan. 15 note. "With competitive China and slower growth in US/Europe, we model 2024 at 16.2% vs. Street at 18.5% which looks too aggressive to us." The firm has a neutral rating on the stock, and its new $229 price targets indicates shares could gain 9.5% from Tuesday's close. UBS' previous target price was $250.