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Analysts have raised Tesla price targets since a stock split at the end of August.
Patrick T. Fallon/AFP via Getty Images
Piper Sandler analyst Alexander Potter sees “crosscurrents” that could drive
Tesla
stock lower in coming weeks. But Potter remains bullish on the long-term outlook for the company and the shares.
The three things Potter sees that could generate share-price weakness are: shorter wait times for
Tesla
(ticker: TSLA) vehicles, Chinese weakness, and rising interest rates.
Higher rates can hurt Tesla, and other car makers, in a couple of ways. They make buying or leasing a car more expensive. Most cars are bought using financing. Higher rates lead to higher monthly payments, which can lower demand for new cars.
And higher rates tend to depress valuations for richly valued, high-growth stocks such as Tesla. The company targets 50% annual growth in sales volume. The stock trades at roughly 48 times estimated 2023 earnings, while the
Nasdaq Composite
trades for 22 times.
Chinese weakness is a big deal for all electric-vehicle makers. The country is the market for new cars and new EVs in the world. Tesla generates roughly 25% of sales in China. Any slowing of the Chinese economy or Chinese auto sales can hit Tesla stock. Sales have flattened out in recent months and shares of Tesla’s Chinese EV peers are lower. EV sales will have to accelerate in September to restore investor confidence in the sector, according to Citi analyst Jeff Chung.
Shorter wait times always have the potential to spook Tesla investors. Tesla, for now, is capacity-constrained. It can sell all the vehicles it can make. That’s an important tidbit for Tesla bulls.
Tesla management says it wants to get wait times down so customers get orders faster, but investors would probably prefer longer waits because they indicate continued strong demand.
If any or all three of those things happen, Potter tells investors not be surprised and not to worry about a stock-price decline. Instead, he believes investors should use it to add to positions. Thursday evening, he increased his price target to $360 from $344 a share. His boost comes as Tesla raised prices for its top-tier driver-assistance software to $15,000 from $12,000. Potter maintained a Buy rating.
Overall, about 53% of analysts covering Tesla rates the stock at Buy or the equivalent. The average Buy-rating ratio for a stock in the
S&P 500
is about 58%. The average analyst price target is about $288, lower than Potter’s mark.
Tesla stock is up 1.1% in Friday morning trading. S&P 500 and
Dow Jones Industrial Average
futures are up 0.5% and 0.4%, respectively.
Write to Al Root at allen.root@dowjones.com
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