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After generating market-thumping returns to shareholders since its IPO (initial public offering), Tesla (TSLA) stock has grossly underperformed the broader markets in the last three years. That said, while it's down 45.3% from all-time highs, Tesla stock has still returned more than 14,000% to shareholders since going public in 2010.
Today, the electric vehicle (EV) manufacturer is valued at $723.2 billion, making it the largest automobile company globally, despite the ongoing pullback. Let’s see if Tesla stock can stage a comeback in the next 12 months.
Tesla Wrestles With Slower Growth, Falling Margins
While Tesla is the largest EV manufacturer in North America, it has been navigating multiple macro headwinds in recent years, including inflation, elevated interest rates, and slowing consumer demand.
In Q2 of 2024, Tesla reported revenue of $25.5 billion with adjusted earnings per share of $0.52. Comparatively, analysts were expecting sales at $24.77 billion and earnings at $0.62 per share in the June quarter. While sales were up 2%, its automotive revenue was down 7% year over year in Q2. Notably, auto revenue from regulatory credits more than tripled to $890 million in the last 12 months.
Tesla has cut EV prices multiple times in the last two years to offset lower vehicle demand. In Q2, it continued to offer discounts and interest-free financial deals to drive demand, which meant its adjusted earnings margin fell to 14.4% from 18.7% last year.
The EV giant is also focused on lowering its cost base amid a challenging macro environment. The company announced plans to cut its workforce by 10% earlier this year as vehicle deliveries declined for the second consecutive quarter.
Tesla's falling sales and profit margin erosion have reduced its free cash flow to $1.71 billion in the last 12 months, down from a record high of $7.56 billion in 2022.
Tesla Gains Traction in China
China is the world’s largest EV market, and a key driver of Tesla’s top-line growth. However, China’s rapidly expanding addressable market has attracted several players, including homegrown rivals like Nio (NIO), Byd (BYDDY), Li Auto (LI), and XPeng (XPEV).
Tesla has maintained a strong foothold in China, despite rising competition. A report from CnEVPost stated that Tesla’s insurance registrations in China rose by 12% to 16,200 for the week ended Sept. 8, up from 14,400 in the previous week. Moreover, the company is on track to report double-digit vehicle delivery growth in China in Q3 of 2024. However, in the first eight months of 2024, Tesla China has sold 587,437 vehicles, down 6% year over year.
Europe is another region where Tesla can thrive, as the European Union recently hiked tariffs on China-made EVs.
Analysts expect Tesla’s deliveries in Q3 of 2024 to rise by 5% year over year to 458,000 units. If Tesla meets the consensus delivery forecast, it will be the company’s third-best quarter in terms of vehicle deliveries.
Deutsche Bank is Bullish on Tesla
In new coverage, brokerage firm Deutsche Bank (DB) rates Tesla a “buy” with a target price of $295, which is among the highest forecasts on the Street. Analyst Edison Yu explained that Tesla should be valued not as an automaker, "but rather a technology platform attempting to reshape multiple industries, deserving of a unique type of valuation framework.”
Yu continued to say that TSLA is “in a league of its own and represents our highest conviction secular leader, poised to reshape multiple industries across auto, energy, mobility, and robotics.” The analyst is particularly bullish on Tesla’s battery storage business, which he projects could generate $13 billion in sales by 2025.
Another potential driver for Tesla’s revenue could be the upcoming launch of its robotaxi. Tesla is scheduled to unveil the robotaxi on Oct. 10, a car CEO Elon Musk has been promising for nearly eight years. According to Musk, the robotaxi will be armed with full self-driving tech, which could disrupt the multi-billion-dollar ride-hailing market. In his assessment of Tesla's valuation, Deutsche Bank's Yu invoked Nvidia (NVDA) as a competitor on robotics.
What's the Analyst Forecast for TSLA Stock?
That bullish note stands in contrast to the majority opinion on TSLA stock, which is still a tepid “hold.” Out of the 36 analysts covering Tesla, 10 recommend “strong buy,” one suggests “moderate buy,” 18 recommend “hold,” and seven call it a “strong sell.”
The average 12-month price target is $201.06, representing a discount of about 13% to current prices. The new price target of $295 from Deutsche Bank suggests that TSLA could rally about 27%.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
