Wells Fargo Rates Tesla Stock as an ‘Underweight Tactical Idea’ for Q4

Wells Fargo analysts have included Tesla in their Q4 2024 Underweight Tactical Ideas list, expressing concerns about declining demand and the adverse effects of price cuts on the company’s profit margins.

The analysts expect Tesla to experience “declining delivery growth driven by lower demand” for its vehicles, which may further impact the company’s performance in the near future.

Wells Fargo noted that Tesla’s strategy of reducing prices to boost demand might yield diminishing returns. They anticipate that “auto gross margin ex-credits will decrease by approximately 400 basis points year-over-year due to lower volumes and ongoing significant price reductions.”

This pessimistic outlook comes as Tesla encounters heightened competition in the electric vehicle (EV) market, coupled with economic factors that are affecting consumer demand.

Wells Fargo pointed out that these challenges are likely to lead to considerable downside risk for Tesla’s stock in Q4. The report also highlights that ongoing price cuts could negatively affect the company’s profitability, raising concerns about Tesla’s long-term growth trajectory.

Wells Fargo has set an Underweight rating and a $120 price target on Tesla, suggesting a potential 54% decline. The bank stated that it remains cautious about Tesla’s valuation compared to other prominent stocks and sees risks associated with its AI strategy.

This assessment contrasts with a report from Morgan Stanley, which maintained an Overweight rating on Tesla. Morgan Stanley analysts expressed confidence that advancements in Generative AI and Large Language Models could serve as a significant catalyst for Tesla’s value, particularly in leveraging its AI capabilities.

Wells Fargo’s report also includes Ulta Beauty among its Underweight Tactical Ideas, indicating that both companies may face downward pressure from various sector-specific challenges.