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Although Tesla (TSLA) remains one of the most-traded stocks in the market, the company faces headwinds from lower-than-expected demand for electric vehicles, price wars, and potentially tariffs.
However, Tesla has multiple other businesses that can lead to share price gains. Whether its robotics, autonomous driving, or artificial intelligence, there are plenty of reasons why bulls continue to buy and hold Tesla stock. But perhaps the biggest catalyst for this name of late has been CEO Elon Musk’s close ties to President Donald Trump.
Despite this, not all analysts on Wall Street are bullish on Tesla. Here’s why analysts at Guggenheim believe more downside could be ahead for the EV maker, reiterating a price target of $175.
Analysts Not Sold on Tesla’s Growth Path
One of the key catalysts that Tesla bulls point to is the company’s “Full Self Driving” (FSD) software. Not only does Tesla want to get ahead in autonomous vehicles, its vehicles and their embedded cameras collect data, which could then be monetized.
To a certain extent, Tesla has already done a decent job of monetizing its FSD software, which currently carries sky-high margins. However, some analysts, such as those at Guggenheim, believe that Tesla's highly anticipated rollout of FSD in China could highlight some of the pitfalls of the company’s autonomous driving trajectory, and ultimately, result in less-than-stellar margins more in line with the auto industry moving forward.
The company’s revenue has moved slightly higher over the past year (from $25.17 billion to $25.71 billion this past quarter), but Tesla’s gross profit has declined year-over-year by approximately 5.8%. Now operating at a gross margin of 16.25% (down from 17.6% in the year ago period), it’s clear that Tesla’s size is starting to weigh on its margins.
And if analysts at Guggenheim are right, and concerns around Tesla’s “ability to price for FSD in the competitive Chinese market and the challenges with developing a robust regional build due to high compute and data export controls” continue to build, TSLA could experience more downside. Shares are already down 35% in the year to date.
Aside from margins, Guggenheim notes that Tesla still has a robust balance sheet with more cash than debt and a current ratio of more than 2x.
In addition to Guggenheim’s concerns, Tesla faces what appears to be deteriorating brand value tied to Musk’s various political endeavors.
What Do Other Analysts Think?
Guggenheim isn’t the only firm that is negative on Tesla stock. There are 10 analysts (out of 40 covering the stock) with “Strong Sell” ratings. While the current average price target for TSLA stock sits at $348.61 per share, the range of targets for TSLA is particularly wide (between $120 and $550 per share). This suggests that Tesla could experience higher-than-average volatility over the next 12 months. The $175 target from Guggenheim implies over 30% downside potential.
The company is being run by a larger-than-life figure who has brought plenty of innovation and disruption to the market. But the question of how much of a positive influence Musk has on the Tesla brand is one that I think the company's board should explore more openly, given how sluggish sales and profit growth have been lately.
The Bottom Line on TSLA Stock
There's much more to this story than just the conversation around Tesla's FSD capabilities and its margin impact over time. In my view, analysts at Guggenheim – and other firms with “Hold” or “Sell” ratings – are likely going to be proven correct on Tesla stock, at least over the course of the next year.
The company’s close association with the Trump campaign provided a boon for Tesla’s stock price into the end of 2024. However, with the “Trump trade” unwinding now, I expect TSLA stock to see more downside from here.
