Daiwa Capital Markets downgraded Tesla (NASDAQ:TSLA) to a Neutral rating (From Outperform) and cut their 12-month price target by $50.00 to $195.00 as the firm sees “corporate governance concerns aggravating already tough financial conditions in 2024.”
Concerns about how Tesla is governed increased after a Delaware judge's ruling questioned the independence of Tesla's Board, leading to the cancellation of CEO Elon Musk's compensation. The Wall Street Journal's recent report on February 4th highlighted these governance issues further. Daiwa analysts suggest that these concerns may create uncertainties about potential changes in Tesla's Board and leadership.
Daiwa underscores the importance of Tesla's management focusing on long-term goals and improving automotive manufacturing techniques for their overall investment thesis. Tesla's commitment to long-term objectives is evident in its investments in full self-driving (FSD), next-generation (lower-priced) EVs, and robotics. This stands in contrast to the wider industry, which is pulling back due to a near-term slowdown in EV demand. Any disruptions to these capabilities could hinder Tesla's technological and cost advantages. For example, a reshuffling of the Board might cause delays in decision-making and limit investment time horizons.
Despite the downgrade, analysts are sticking to their 2024 and 2025 EPS estimates at $3.10 and $4.25, respectively. These estimates are based on the expected growth in delivery volume of 13% and 16%. While EV sales growth in the US slowed to 5% in January, more favorable comparisons are contributing to increased sales growth in China.
“While we could see some improvement from current levels as the kinks around IRA subsidy availability are removed, the persistence of slower growth could put further pressure on pricing.” Wrote analysts in a note.
Shares of TSLA are down 1.76% in pre-market trading Tuesday morning.