Tesla Is the Analyst's Most Downgraded Stock: How Low Can It Go?

Key Points

• Tesla is at the top of Marketbeat's Most Downgraded Stocks list and may stay there this year.
• Consensus predicts a 20% upside but it is falling, and many fresh targets see a double-digit downside.
• The market for TSLA stock is at a critical juncture that may lead the market lower — or produce a solid rebound.

Tesla NASDAQ: TSLA shares are down more than 40% from their highs and may go lower. Mounting headwinds in the EV market related to demand and costs have curtailed the once-robust growth outlook and have the market for TSLA stock on the ropes. The price action shows signs of support at a critical level, so downside risk could be limited. If support at the critical level does not hold up, it could lead to a massive outflow of investor dollars. In that scenario, Tesla's shares could fall another 30% to 40% before hitting solid support. 

Sentiment Sours for Tesla: It Is the Most Downgraded Stock in Q1 2024

Sentiment soured for Tesla following the Q1 release. The highlights included weakness on the top and bottom lines and tepid guidance, expecting volume growth to be noticeably lower than in prior years. The news sparked a round of analyst revisions that can be called nothing other than unsatisfactory, with 22 of the 23 reports including a downgrade, price target reduction, or both. 

While consensus forecasts more than 20% upside for the stock price, investors should not be too hopeful now. It is trending lower and likely to weigh on the market in the foreseeable future. Some new targets are above consensus, but most are below, and additional weakness is expected before bottoming. Regarding sentiment, it fell to Reduce from Hold. 

The single outlier among the analysts is Wedbush, which reiterated an Outperform rating. Analysts at the firm pegged Tesla stock with a price target of $315. That target is shy of the high price target of $320, which is also trending lower. Morgan Stanley was the most bullish on Tesla with a target of $345 but cut it by 7.5% following the Q1 release. 

The most recent downgrade is from Mizuho. Although the firm calls Tesla the EV leader,  Mizuhot downgraded Tesla stock and the sector, citing concerns about demand and liquidity. Not only is demand weakening generally, but inventory is a concern — as is the increasing competition from China cutting into market share for North American manufacturers. All the major EV OEMs guided light for 2024, below prior forecasts and capacity, and the outlook may be optimistic.

Tesla Is a Pricey Stock, No Matter How You Look at It

Wells Fargo cited valuation among its concerns when it reduced Tesla to its lowest rating, setting a target of $125, or 30% below the current action. They believe 55x this year's earnings and 40x next are high prices, even for Tesla. The other Magnificent Seven stocks and most blue-chip tech trade closer to 30x this year's earnings and are supported by healthier end markets. 

The next visible catalyst for Tesla shares is the FQ1 results due in late April. The analysts are pressuring the market lower with downward revisions ahead of the report but maybe lowering the bar too much. The consensus expects sequential growth to slow to low single-digits from low double-digits and YOY growth to accelerate sequentially. Still, the 11% is down sharply from last year's 24%, and below industry forecasts. Forecasts are falling but continue to vary from the low teens into the 30% range, depending on what data you are using. 

Tesla's Technical Set-Up Is Sketchy

Tesla's technical setup shows a market that may be at support levels but is sketchy and has abundant downside risks. The market shows support near $160, consistent with a prior low. But the market is also below critical resistance, which is near $180, a number that has provided support and resistance numerous times since 2021. If this level can't be regained soon, Tesla shares could become range-bound at current levels with a chance of a deep correction. If the market can't sustain support near $160, $120 is the next target.