Tesla Stock Receives Another Downgrade, Defies Expectations with an Increase. What’s the Secret?

Tesla Stock Receives Another Downgrade, Defies Expectations with an Increase. What’s the Secret?

Tesla

stock was unsure of what it wanted to do on Monday, initially trading lower after another downgrade and then bucking those losses to turn solidly green.

At midmorning, shares were essentially flat.

The downgrade, the fourth from a major broker this year, comes as demand for electric vehicles keeps slowing—and means Wall Street hasn’t been this bearish on Tesla in years.

On Sunday, Mizuho analyst Vijay Rakesh downgraded shares of Tesla,

NIO
,

and

Rivian Automotive

to Hold from Buy.

Rakesh’s Tesla price target was reduced to $195 from $270, according to FactSet. NIO went to $5.50 from $15. He slashed Rivian to $12 from $24.

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“While we remain constructive on the broader EV landscape with the long-term trend to electrification, near-term EV demand, and tightening liquidity are creating challenges into 2025,” wrote Rakesh, adding high inventory levels are pressuring wholesale volumes from auto makers. Demand is ”decelerating faster than expected.”

Tesla was down more than 1% in premarket trading and then gained1.2% in early trading. NIO was down early but rallied and was up 2% in early trading. Rivian did the same—up 1.7% in early trading.

One reason for gains is all the bad news is already reflected in shares. Slowing EV demand isn’t a new theme. And for Tesla, Rakesh’s rating cut is No. 4, from a big player, since January. Earlier in March, Wells Fargo analyst Colin Langan cut his rating to Sell from Hold and reduced his price target to $125 from $200.

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Lower ratings and estimates have weighed on investor sentiment. Coming into Monday trading, Tesla stock was already down 31% this year.

Those losses came as Wall Street cuts delivery estimates. For 2024 deliveries, the expectation is now about 2 million units. Coming into the year, the consensus call was closer to 2.1 million. Tesla delivered about 1.8 million units in 2023.

Analysts project 2024 earnings per share of just under $3. At the start of the year, the consensus call was closer to $3.81.

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The average analyst target price is now about $203. At the start of the year, it was closer to $240.

Now, 33% of analysts covering Tesla stock rate shares a Buy. That’s the lowest Buy-rating ratio since March 2021, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

For NIO, 60% of analysts covering its stock have a Buy rating. The average analyst price target is about $7.70. About 54% of analysts covering Rivian stock rate shares at Buy. The average analyst price target is about $17.

Separately, Chinese EV maker

BYD
,

which overtook Tesla as the biggest maker of electric cars in the fourth quarter, lowered the starting price of its Seal sedan by about 5% on Monday, Reuters reported.

Nissan
,

the Japanese car maker, announced a new medium-term business plan that calls for a dozen new EV models and the reducing of production costs of its electric vehicles by 30% by 2030.

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Lower prices and more competition aren’t positives for Tesla.

Lucid

stock, however, was up almost 20% after a $1 billion capital injection from majority shareholders in Saudi Arabia.

Sometimes a large move in one stock can impact others in the sector. That’s another factor for investors to consider.

Write to Brian Swint at brian.swint@barrons.com

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