"Tesla, a Growth Company Without Growth" Wells Fargo and 8 Others Issue 'Sell' Ratings

"Growth Without Growth" Evaluation of Companies

As pessimism grows over Tesla's earnings outlook, nine securities firms including Wells Fargo have issued 'sell' ratings on the electric vehicle market leader.

According to major foreign media such as Bloomberg on the 13th (local time), among the 48 securities firms covering Tesla, nine including Wells Fargo assigned 'sell' or 'underweight' ratings to Tesla. This is the first time since July 2022 that so many sell opinions have been issued.

[Image source=Yonhap News]

In a report released that day, Wells Fargo gave Tesla a 'sell' rating, citing bleak earnings forecasts for Tesla this year and next as the basis. Colin Langan, an analyst at Wells Fargo, described Tesla as a "growthless growth company." Although Tesla's sales in the second half of last year increased by 3% compared to the first half, prices fell by 5%. He lowered Tesla's net income estimate from $2.40 per share last year to $2.00 this year, significantly below the market average of $3.03 compiled by Bloomberg.

Evercore analysts, after touring Tesla's Texas factory, expressed concerns that production of Tesla's affordable electric vehicle known as the 'Model 2' could be limited to 500,000 units in 2026. They also pointed out that Tesla returning to a growth phase is something that could only happen several years from now. Previously, Wall Street had expected Tesla to produce over one million units of this model in 2026.

Tesla's stock price fell 4.5% that day, closing at $169.5, the lowest in 10 months. While the Standard & Poor's (S&P) 500 index rose 8.3% this year, Tesla's stock price dropped 32%. More than $245 billion of Tesla's market capitalization has evaporated this year alone, pushing it down to 12th place from the top 10 in the S&P 500. Tesla CEO Elon Musk also lost his title as the world's richest person.

The media attributed Tesla's stock price slump to concerns over unstable growth. Recent earnings reports revealed weak sales in the Chinese and European markets, and especially production disruptions at the factory near Berlin caused first-quarter shipments to fall short of analysts' average expectations. CEO Musk implemented price cuts to boost demand but saw little effect.

Adan Sarhan, CEO of 50 Park Investments, explained, "The market currently judges that Tesla does not deserve such a high valuation," adding, "Since sellers hold the initiative, a strong catalyst is needed to reverse the mood."

David Wagner, manager at Aptus Capital Advisors, analyzed, "Tesla has long focused its investments solely on the electrification of vehicles worldwide. While this was a compelling story in the past, the market's current favorite theme is artificial intelligence (AI)." He added, "If revenue and net income growth slow, the previous corporate value premium is no longer guaranteed."

Meanwhile, despite the recent decline, Tesla's stock is still trading at about 55 times future expected earnings, exceeding the so-called 'Magnificent 7' average of about 31 times.