Right now Tesla (TSLA) is a case study in how sentiment on a stock changes, how long it takes sentiment to change (and recover), and the stages of sentiment change. Your understanding of this process should be your guide to whether you want to own Tesla stock and when.
Tesla (TSLA) could potentially lose money in 2024, Morgan Stanley’s Adam Jonas wrote in a note to investors this week. And he cut his Tesla earnings projections by 25% to $1.51 a share from a prior $2.04. Gross profit margins will fall to 11.4% (excluding regulatory credits that Tesla gets paid by automakers looking to meet EPA mileage and emissions rules.)
And this is from a Tesla bull. Jonas cut his Tesla price target to $320, down from $345, but that’s still well above the March 7 closing price of $178.65 a share. And he maintained an overweight rating on the shares.
“EV demand continues to decelerate despite continued price cuts. Fleets are dumping EVs and strong hybrid momentum is competing for the marginal EV buyer,” Jonas. “If there was ever a time for Tesla to potentially post a GAAP EBIT loss in the auto business, it may be this year.”
He continued “We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first.” But “We do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down.”
Yes, indeed, the sentiment has shifted on Tesla if that is what an analyst who still rates the stock “overnight” has to say. The stock is down 28.95% in 2024 to date as of March 8 and down 26.25% for the last three months.
Remember when Tesla was one of the Magnificent 7 stocks driving the rally in the Standard & Poor’s 500? At the moment, I rank Tesla among the dogs of this market. Wall Street expects Tesla to earn just $3.06 a share in 2024, according to FactSet. That would be a 2% decline versus last year’s $3.12.
So do you buy/sell/or hold Tesla?
Recognize that this is now a broken momentum stock. Which means that momentum investors as a group have either sold or are selling.
And there’s nothing in the story about earnings or margins or sales in the next quarter or two, certainly, to get growth investors excited. The stock won’t see buyers from that group until the fundamental story improves. Right now I think this group is likely to be selling.
And the stock is not yet cheap enough to attract value investors who might make up for the departure of momentum and growth investors. The stock has broken well below the 200-day moving average at $234.87 and the 50-day moving average at $204.14.
Looking at a chart there’s really no support for the stock until the April 26, 2023 low at $153.75.
If I were a value investor, I’d be eyeing that level and thinking about buying there. And looking to ride improved fundamentals back up through the shift in sentiment from growth stock investors and then, again, to momentum investors.
That April 2023 low is where I think we might see Tesla shares put in a floor–absent another raft of bad news.
And I’d certainly think about buying there–a couple of quarters down the road maybe–because Tesla still has immense assets–in battery technology, in manufacturing, in charging, and in all its non-auto businesses that are being sold, at today’s stock price, at deep discount, because of the troubles in the automotive business.
So my rating is sell now and look to buy when the price is low enough to bring value investors to the table in a quote or two (or three).
