Tesla Gets Fresh Downgrade; Analyst Questions If Big Profits Were 'Structural' Or Temporary

Jefferies downgrades Tesla stock, questioning if recent big profits were 'structural' or temporary.

Tesla's (TSLA), stock plummeted last month, accelerated after the first-quarter results released by Tesla this week showed that gross margins had shrunk more than expected. Another analyst downgraded Tesla's stock on Wednesday, implying that the global EV company may need to "reset", and raising doubts about whether Tesla's huge profits were only temporary.

Jefferies analyst dropped Tesla's rating to "Hold" from "Buy" on Wednesday. Analyst Philippe Houchois has also reduced his Tesla stock target price to 185 from 230.

Houchois wrote: "We reduced our rating to Hold, pending a reset in performance and perhaps governance."

Houchois said Tesla's growth-over-margins strategy has "logic" and "resets expectations." According to the analyst, however, it is also a question as to whether Tesla's profit advantage was structural or just a difference in timing.

Other than that, Tesla's large margins may have been due to a reduction in overall auto production caused by the Covid Crisis and now-dwindling chip shortages.

Tesla is speeding up the transition towards a sustainable energy world and resource efficiency. Houchios wrote that the process was chaotic and could slow down EV adoption while accelerating profit normalization in the industry.

Jefferies has slightly reduced its 2023 Tesla revenue forecasts.

Tesla's stock dropped 4.3% in the market on Wednesday, to 153.75. This is a new three-month low. Stocks fell as Reuters reported that the global EV company had violated U.S. labour law.

Michael Rosas, Administrative Law Judge for the National Labor Relations Board, ruled on Tuesday that Tesla supervisors in a Florida service centre violated U.S. Labor Law. The decision states that managers instructed employees to refrain from discussing pay, working conditions, or bringing complaints to higher-level managers in 2021, Reuters reported on Wednesday.

The judge ordered Tesla not to violate workers' rights, and that it post notices of the violation at the service center as well as email them to all employees.

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Jefferies' move comes after many firms lowered their TSLA target share prices late last week as a reaction to Tesla's first-quarter earnings.

Wedbush analyst Daniel Ives is a Tesla bull who has been a Tesla fan for many years. He maintained his "Outperform' rating and reduced his price target from 225 to 215.

Adam Jonas, an analyst at Morgan Stanley, has revised his firm's Tesla Stock Price Target to 200 from 220-. Jonas maintained an "Overweight' rating on TSLA.

Tom Narayan, an analyst at RBC Capital, lowered his firm's Tesla price target to 212 dollars from 217. He also maintained the "Outperform rating" on Tesla. Citigroup (C), like the other firms, lowered its Tesla stock target price to 175 from 192.

Citigroup cut its price target because Tesla's margin missed "confirms that vehicle price reductions were not offset as much previously expected." Itay Michai, an analyst at Citigroup, expects that the stock will pull back. He says that a price entry in the near term requires more confidence on demand.

Wells Fargo (WFC), a major financial institution, has maintained its "Equal weight" rating for Tesla shares while lowering their price target from 190 to 170. Deutsche Bank (DB), on Thursday, also lowered its TSLA stock price target to 200 from 250.

Tesla's stock dropped 10.8% in the last week, to its lowest level since late January. The majority of the drop occurred on Thursday after Tesla announced its gross margin had dropped more than expected. Elon Musk also hinted that more drops could be forthcoming.

The TSLA share price has dropped by more than 25% since April.

Tesla stock does not have a base. According to MarketSmith, if Tesla recovers it could form a base at a double bottom with a buy point of 207.89.

Tesla is ranked fifth in IBD’s Auto Manufacturers group. TSLA is rated 65 out of 99. Stocks have a Relative Strength rating of 24. The EPS rating is 92 of 99.

Follow Kit Norton on Twitter @URL to get more updates.

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