Barclay’s is worried that Tesla (TSLA:NASDAQ) investors are sticking their heads in the sand over near-term challenges and has told clients that this could be a very smart opportunity to take some profit off the table.

Analyst Dan Levy on Wednesday (21 Jun) cut his Tesla rating from Buy to Hold while slicing his target price for the stock by more than 15%, from $260 to $220.

Tesla zealots aside, many investors will see his point. Tesla shares have jumped nearly 40% in a month, bolstering its market capitalisation by roughly $188 billion. The stock has raced 140% higher in 2023. That’s breakneck even for Tesla.

SUPERCHARGING THE STOCK

Electric vehicle (EV) charging deals with Ford (F:NYSE), General Motors (GM:NYSE) and Rivian Automotive (RIVN:NASDAQ) have helped to supercharge the run – Morgan Stanley recently estimated that the charging network could be worth more than $100 billion by 2030.

So has AI (artificial intelligence) optimism. Tesla uses AI to train its autonomous-driving technology.

Levy is focused more on the existing car business than the AI opportunity and he doesn’t see things as positively as the share price run implies, in the short-term anyway. More price cuts are possible to seed EV sales in a sagging economy and fend off rising competition which would pressure profit margins and earnings that are already creaking.

In April, Tesla reported first quarter gross profit margins of 19.3%, compared with expectations of 22.4% expected, the lowest since the fourth quarter of 2020.

‘The relative disregard of challenges to near-term Tesla fundamentals amid the sharp rally is our key concern for the stock,’ wrote Levy.

BACK TO FUNDAMENTALS

He sees Tesla EPS (earnings per share) of $4 in 2024. The Wall Street consensus is at $5.03, based on Koyfin data. Even if Tesla does earn close to the average, the recent rally to $260 has taken the stock’s PE (price to earnings) multiple to about 52 times estimated 2024 numbers, from 38 a month ago.

Investors have just become too optimistic too quickly for Levy.

We assume that most Tesla shareholders are in it for the long-haul. We also know how difficult it is to time the market, so doing nothing will suit many. For those more hands on, it is hard to argue with the logic of banking some profit if you think the stock is due a spell of consolidation – you can always buy back what you sold in three or six months for less.

Whatever your decision, it’s a pleasant problem to have.

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