Bernstein's best idea for 2024? Short Tesla stock

December 8, 2023 4:50 AM EST
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Bernstein is promoting short Tesla stock as its “best idea for 2024,” with their analyst seeing nearly 40% downside risk from current levels.

Analyst Toni Sacconaghi has an Underweight rating on Tesla (NASDAQ: TSLA) and a $150 per share price target.

Tesla stock closed 1.4% up on Thursday and it’s up 97% year-to-date.

“At a fundamental level, 2023 has been a very difficult year for Tesla, with 2023 EPS ~50% below consensus estimates at the start of the year. Yet amazingly, the stock has nearly doubled YTD,” Sacconaghi said in a note to clients on Friday.

Tesla's primary challenge, according to Bernstein, centers around a demand issue linked to its limited and high-cost product lineup, primarily consisting of the Model 3 and Model Y.

Their analysis suggests that Tesla's product family faces saturation and increased competition in the electric vehicle sector, leading to the necessity of price reductions that impact profit margins.

Sacconaghi anticipates this challenge to persist, projecting a lack of new high-volume offerings from Tesla until 2026. The introduction of the Cybertruck is seen as having a limited addressable market, with estimates indicating it could pose a 100 basis points headwind to gross margins in 2024.

Moreover, the analyst argues that the Street 2024 estimates are “too high.”

“To stimulate demand Tesla had to dramatically cut price in FY 23, and we believe will need to do so again in FY 24.”

In the effort to achieve a YoY volume growth of approximately 485,000 units in the fiscal year 2023, Tesla implemented a 16% price reduction, resulting in substantial pressure on automotive gross margins by 750 basis points, Bernstein highlighted.

According to analyst estimates, Tesla is anticipated to grow volumes by over 400,000 units, maintain nearly flat prices, and improve automotive gross margins by more than 200 basis points.

The analyst expresses skepticism about these projections, forecasting a fiscal year 2024 earnings per share of $2.59, in contrast to the consensus estimate of $3.34.
“Given the disconnect between Tesla’s FY23 financial vs. stock performance, investors may ask “why now and what will be different in 2024?” Our belief is that Tesla’s valuation has been supported by growth expectations, even as margins have eroded.”

“We expect delivery and revenue estimates for 2024 and 2025 will come down materially. While significant downward EPS revisions had no impact on TSLA’s stock this year, we believe a waning of the growth narrative could weigh on the stock’s multiple (currently ~75x 2023 earnings, well above higher margin, growth stock peers),” the analyst concluded.

Tesla stock is up 0.3% in pre-market Friday trade.

By Senad Karaahmetovic

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