Tesla Stock Upgraded for Long-Term Outlook

Tesla stock has faced a series of challenges in recent times, with downgrades and estimate cuts causing concern among Wall Street investors. However, there is now some good news as Battle Road Research analyst Ben Rose has upgraded his rating on Tesla stock to a Buy. Despite not providing a specific price target, Rose's rating indicates his expectation that Tesla stock will outperform the S&P 500 in the coming months.

While other analysts have been downgrading Tesla stock, Rose is taking a different approach. FactSet data shows that the stock was downgraded five times between June and July. Valuation concerns have been a major factor, given that Tesla stock has risen by about 95% since the beginning of the year. Additionally, a more challenging competitive environment has also contributed to the downgrades.

Analysts have been lowering their delivery estimates for Tesla as well, particularly as the third quarter draws to a close. Emmanuel Rosner, an analyst at Deutsche Bank, recently reduced his delivery number to 440,000 units from 455,000 units due to production downtime for plant upgrades during the quarter. Rosner also adjusted his price target to $285 from $300 while maintaining his Buy rating. Overall, Wall Street now expects around 462,000 units to be delivered, compared to the previous estimate of 473,000 units.

Despite acknowledging these potential problems, Rose highlights in his report that Tesla remains the clear leader in the electric vehicle (EV) market. He points out that the company has new models on the horizon, including the highly anticipated Cybertruck pickup and a smaller, more affordable electric vehicle slated for release in 2025.

According to Rose, there are no indications that Tesla will surrender its substantial market share. He explains that the company is fiercely committed to maintaining and expanding its market presence, as evidenced by recent price cuts. In fact, Tesla's market share of U.S. EV sales in the first half of 2023 remains above 60%, which thoroughly surpasses any competitors.

Rose also believes that Tesla is more than just an automotive company. He sees value in the Full Self Driving software and energy storage business, showing his confidence in Tesla's ability to diversify and innovate beyond traditional car manufacturing.

Overall, the upgrade from Battle Road Research brings some positive sentiment to Tesla stock, specifically regarding its long-term prospects. With a leading position in the EV market and exciting new models on the horizon, Tesla continues to shine amidst the challenges it faces.

Tesla's Pursuit of Full Self-Driving Cars

Tesla has set its sights on achieving fully self-driving cars, a goal that could unlock the lucrative robotaxi business and revolutionize transportation for commuters. While mass-market self-driving technology is not yet a reality, it is the ultimate objective for Tesla.

According to Rose, Tesla's Full Self-Driving (FSD) technology is comparable to its charger network, which has become an integral part of the brand's consumer experience. Although valuing FSD as a separate entity from Tesla's car business has been challenging, the recent decision to open it up to other automakers like Ford Motor and General Motors suggests its potential value could be unlocked through licensing.

In addition to FSD, Tesla's energy storage division has experienced significant growth in sales, with a 74% increase in the second quarter compared to the previous year. This has resulted in gross-profit margins rising to about 18% from 11%. According to Rose, the energy storage business has the potential to become a solid gross-margin operation with annual growth rates of 20% to 25%.

Despite recent stock pullbacks, Rose remains optimistic about Tesla's long-term prospects and recommends investing in the company. The stock is currently down nearly 20% from its July highs, presenting an opportunity for investors.

While some analysts have been less enthusiastic about Tesla due to price cuts and rising interest rates, approximately 41% of analysts still rate the stock as a Buy. This is a decrease from 64% a year ago. In comparison, the average Buy-rating ratio for S&P 500 stocks is around 55%.

The average analyst price target for Tesla stock is now $258, down from $318 a year ago. On Wednesday, Tesla stock closed at $242 per share, experiencing a slight decline of 0.8%. In premarket trading on Thursday, it has dropped by 1.2%.