Tesla (NASDAQ:TSLA) stock has been downgraded to a Sell recommendation by Philip Securities analysts, who said there is “not much to like” about the electric vehicle (EV) giant following its latest quarterly report. The analysts set a price target of $135 on TSLA, implying nearly 40% downside risk from the current levels.
The downgrade comes amid several pressing concerns, primarily soft deliveries and pricing, pressured auto margins, and “minimal commentary” from Tesla’s management to dispel near-term concerns.
Tesla’s EV deliveries increased by 15% quarter-over-quarter, likely driven by the sixth consecutive quarter of reduced EV prices and attractive financing options. However, deliveries fell by 5% year-over-year for the second consecutive quarter, reflecting persistently weak overall demand.
“Intense competition, particularly in China, remains a key near-term headwind, while the potential reduction in IRA credits if former President Trump is elected to office could also negatively impact demand in the US. Auto revenue declined 7% YoY,” analysts noted.
Moreover, Cybertruck ramp and EU tariffs continue to weigh on Tesla’s auto margins, one of the closely watched metrics. The EV giant reported margins of 14% in the second quarter, missing consensus estimates.
“We believe these headwinds will persist and continue to weigh on near-term margins,” analysts added.
Lastly, the analysts said Tesla’s management “spent almost no time dispelling concerns over its stalling Auto business,” and rather focused on plans such as Robotaxi, its Full Self-Driving (FSD) solution, and Optimus. But this, analysts cautioned, “is still 3-5 years away from contributing meaningfully to growth.”
On the other hand, Tesla’s revenue from energy storage doubled year-over-year, representing one of the few positive highlights of the report, according to analysts.
Record energy storage deployments of 9.4GWh propelled TSLA’s energy storage business to $3 billion, “more than offsetting the dip in Auto revenue,” they said.
“This was due to increasing ramp-up in its Lathrop Megapack factory, as TSLA remained demand constrained,” the analysts added.