Longtime Tesla bull downgrades Tesla, calls for a 20% decline on potential scrapping of low-cost vehicle

Published Thu, Apr 18 20247:05 AM EDTUpdated Thu, Apr 18 20249:15 AM EDT

The tough times will continue for Tesla as the company potentially pivots from building a low-cost entry vehicle in favor of self-driving technology, according to a longtime bullish analyst at Deutsche Bank. Emmanuel Rosner downgraded the electric-vehicle maker to hold from buy. He also slashed his price target to $123 from $189. The new forecast implies downside of 20.9% over the next 12 months. Tesla premarket shares were down 1.7%. The downgrade comes after an April 5 Reuters report said that Tesla had canceled plans to build a low-cost car, known as the Model 2, due to increasing competition in China. The car, according to the report, would have started at about $25,000. CEO Elon Musk said Reuters was "lying" but did not elaborate. On the same day, Musk said Tesla would unveil a robotaxi design on Aug. 8 . "The delay of Model 2 efforts creates the risk of no new vehicle in Tesla's consumer lineup for the foreseeable future, which would put continued downward pressure on its volume and pricing for many more years, requiring downward earnings estimate revisions for 2026+," wrote Rosner of Deutsche Bank. Rosner had a buy rating on Tesla since October 2021. Shares are down 37% this year already on fears of slowing sales and changing tastes in electrical vehicles. CNBC reported on Monday that Musk told employees Tesla would be cutting more than 10% of its global workforce . "Without any new vehicle, we feel that Tesla could face more headwinds to growth, as competition arise in China and from other OEMs, to which the company may not be able to respond due to limited [free cash flow,]" Rosner added. The analyst noted that the robotaxi could be a strong source of earnings once implemented, "but to get there, Tesla will need to solve significant technological, regulatory and operational challenges." Last week, two agencies in California that regulate robotaxis said they haven't been contacted by Tesla about its plans for the self-driving cars. "The fact that Mr. Musk announced an unveiling of Robotaxi for Aug 8 in no way means the technology is ready," Rosner said. "We worry there is considerable execution risk to the development of Robotaxi technology and that a fleet deployment could be years away." TSLA YTD mountain TSLA year to date Tesla is the second-worst performer in the S & P 500 this year. Tesla did not immediately respond to CNBC's request for comment.