The stock of Tesla (Nasdaq: TSLA) grabbed the market’s attention yesterday after Mark Delaney, an analyst at Goldman Sachs downwardly revised the price target of Tesla, but maintained the “buy” rating. The analyst cited sluggish demand (and also supply due to COVID-19-related shutdowns in China) as the main reason for the price revision.
The stock had lost over 10% in the past five trading sessions. At $157, the electric car manufacturer’s stock is trading 60% below its 52-week peak of $402.64. Notably, the share price of Tesla has been declining from the moment Elon Musk started focusing on Twitter, and Goldman Sachs’ downward price revision has added fuel to the fire. The stock of Tesla closed Thursday’s trading session at $157.67, unchanged from its prior close.
Delaney states that the downward revision of estimates is in line with the enhanced benefits and deep discounts for select Tesla automobiles this quarter, as well as decreased delivery times and weak macroeconomic data. He further points out that his team has observed a number of similar price declines and manufacturing glitches over the past several months. Despite this, the analyst still believes that the company is “placed favorably for long-term wealth creation.”
According to the analyst, indications of a decline in demand have begun to surface. The Goldman Sachs analyst team further stated that “of late, there has been a shutdown of its main Shanghai production facility, which usually accounts for a major portion of Tesla’s output outside the US.” Also, there are dependable reports indicating a planned suspension of production at the end of December. Even though Tesla has denied any slowdown in demand, undoubtedly the worries are getting real.
Production of the Model Y and Model 3 versions is anticipated to be halted in the final week of December, as per a Bloomberg report. Furthermore, the production of the Model 3 is only expected to restart at the beginning of next year. In the case of Model Y, the report indicates further delays in resuming production.
Also, citing another insider, Bloomberg states that production of the Model 3 will be suspended at the end of January in lieu of Chinese New Year celebrations. However, the postponements are expected to grant additional time for technical upgrades and machinery maintenance to paving the way for the production of an improved variant of the model.
Notably, a report by Reuters provides more insight into the anticipated delays in production. The report highlights an internal notice revealing Tesla’s plan to terminate Model Y production from December 24 to January 1. The termination of an assembly line would cause a 30% decline in monthly Model Y production. Such a kind of production suspension is not a normal routine by the factory, the report cites. Also, the Bloomberg report alleges that the sluggish demand in China would bring down the entire factory production by 20%. However, Shanghai Securities Journal has refuted reports as “false” claims.
Notably, the Shanghai factory, which is the key manufacturing facility for Tesla, did not halt production in the final week of December.
Based on the reasons mentioned above, Delaney slashed the price target of Tesla to $235 per share from its prior level of $305 per share. The new price target reflects a 25% reduction in the price target but is still around 45% higher than Thursday’s closing price.
The downward revision of the price target is expected to keep the share price of Tesla range-bound in the short term.
The historical price chart indicates that the stock of Tesla is declining after facing heavy resistance at 300. The next major support is anticipated only near 130. Additionally, the share price is trading below its 50-day moving average while the stochastic indicator is in the bearish zone. Therefore, we anticipate the stock price of Tesla to remain in a downtrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
