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Tesla Inc. “is the original meme/momentum stock,” according to a Barclays analyst, but he thinks the recent rally in shares has become too detached from fundamentals.
“Our experience covering TSLA has made us well aware of the potential for TSLA’s stock movements to be driven by more than fundamentals,” Barclays’ Dan Levy wrote Wednesday. He’s “been willing to be more generous” with his stock multiple in the past based on that dynamic, but Tesla shares have run up about 70% from their April bottom — a surge Levy deemed “too sharp” in the face of “challenging” near-term trends.
He downgraded the stock to equal-weight from overweight in his note to clients, while boosting his price target to $260 from $220.
Tesla has benefited from the wave of attention around artificial intelligence, as the company’s Full Self-Driving (FSD) software leverages AI technology, and both Tesla’s management and some Wall Street analysts are upbeat about the company’s potential to drive big sales of that product over the long run.
See more: Tesla’s robotaxi future sparks more optimism for its stock
Additionally, Tesla sentiment has benefited from recent announcements with rivals General Motors Co. Ford Motor Co. and Rivian Automotive Inc. which have struck deals to let their drivers use Tesla’s Supercharger network.
See also: Rivian inks Tesla fast-charging agreement, joining Ford and GM
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“We agree these dynamics are positive, but believe it will take time for benefits to show through,” Levy wrote. In his view, “the majority of realizable benefits from
these recent drivers of sentiment will be rather long-dated, and do little to offset the headwinds we see in the near term.”
As far as AI and Tesla’s FSD product, Levy said, the company “has taken the arguably more challenging path to unlocking autonomous driving” by focusing on machine learning rather than LiDAR technology and “extensive mapping.”
“This approach is notably non-consensus, and we expect it to have a binary outcome that in our view remains a ‘show-me’ opportunity with long-dated returns,” he said in his report.
On Supercharging, Levy said there is “considerable uncertainty from investors as to what exactly this development means” as the deals strike him as providing more of a marketing lift than a financial one at this stage.
Read: Here’s why Tesla’s latest EV-charging deal is more problematic for EVgo than ChargePoint
Tesla has about 18,000 U.S. and Canada Superchargers, and more than 45,000 globally. “With Ford/GM customers gaining access to just over 12k of the US/Canada TSLA Superchargers, we presume this access will be skewed to less utilized locations,” he wrote. “This dynamic, alongside just a modest amount of Ford/GM EVs on the road today (in the 300k range) likely implies the financial opportunity for TSLA is immaterial in the near term.”
In the meantime, he said that consensus earnings expectations for 2024 seem too high for Tesla, while the company may have to conduct further price cuts, especially given third-party data points on Model 3 inventories.