Tesla shares are likely to take a hit in the third quarter as the company’s strategy of boosting sales by slashing prices loses steam, according to Wells Fargo. The bank forecasts that Tesla will deliver 1.55 million units this year, down 14% year over year and missing consensus estimates by 13%. “We remain concerned with recent moderating trends, across all three key regions (U.S., EU, China),” analysts led by Colin Langan told clients in a research note on Monday. “Few levers remain to increase volumes outside of pricing & model refreshes, as the company has resorted to financing promotions with seemingly little effect,” the analysts said. TSLA YTD line Tesla Wells Fargo has an underweight investment opinion on Tesla and a price target of $120 per share, implying nearly 40% downside from Friday’s close of $197.88. The electric vehicle maker’s shares are down about 17% year to date as of Monday morning trading in the U.S. Electric vehicle adoption in the U.S. and the E.U. has plateaued, and Tesla faces aggressive competition in China from companies such as BYD, leaving “little immediate levers to pull to increase volumes,” the Wells Fargo analysts said. The research team is also worried about the demand and profit margins for Tesla’s smaller, mass-market Model 2. Lower deliveries and price cuts could drive a 44% decline year over year in Tesla’s earnings per share, according to the bank. “We are cautious on margins given likelihood of more price cuts & lower volumes,” the Wells analysts said. “Moreover, we are concerned about the roll-out of their next models and their demand & margins.” Tesla’s second-quarter financial results are scheduled for release on July 17, according to FactSet.
