As concerns about potential demand for electric vehicles intensify, Bank of America has significantly lowered its target price for Tesla stocks. So far this year, the cumulative decline of the stock has reached 31%.
According to the latest report released by Bank of America, the bank has set its target price for Tesla stocks at $220, a 21% drop from its previous target of $280. This means that Tesla's stock price has a 28% upward potential at the current level. At the same time, the bank still maintains a "neutral" rating for the stock.
A week ago, Tesla just announced its delivery volume for the first quarter, far below Wall Street's expectations. Tesla attributed it to supply delays, including a fire at the Berlin factory and a decrease in production of the new Model 3 at the Fremont factory, but Bank of America believes that the main reason is the decrease in market demand for its products.
The bank stated, "The increase in inventory in the first quarter seems to be mainly driven by a decrease in delivery volume, particularly in North America where electric vehicle sales have remained relatively stable since the summer of 2023."
Bank of America pointed out that in order to accelerate growth, Tesla either needs to update its product lineup or start lowering prices again.
The report states, "We believe that due to weak demand, Tesla will face increasing profit pressure. Unless Tesla enters new regional markets, we believe it will be difficult for the company to generate more sales revenue with its existing product portfolio or without further price reductions."
"This makes pricing the main lever for stimulating demand (we have noticed that this lever has not been effective so far). Therefore, sales growth remains one of the company's key priorities, which means there may be more price discounts," added the strategists.
Finally, Bank of America pointed out that one of the risks Tesla faces is that it sells directly to consumers rather than relying on the dealer network. This means that the continuously rising car inventory is recorded on Tesla's books, and if the inventory is not cleared, it may bring considerable pressure to Tesla.
In the first quarter of this year, Tesla's car production exceeded sales by 46561 units. Bank of America estimates that the company's cumulative inventory is approximately 150000 vehicles.
"We believe that Tesla is unlikely to effectively manage such high inventory levels. The risk of reduced production of mass-produced models in 2024 is real," the report said.