Tesla: Wall Street resetting expectations after shifting from initial 'EV euphoria,' analyst says

Tesla enthusiasts are expressing concerns about the performance of the electric vehicle company, but they still have faith in its potential in the long run. This is largely due to Tesla's recent collaborations with traditional automakers for supercharger deals. Dan Levy, a senior autos analyst at Barclays, recently downgraded Tesla in his analysis. He appeared on Yahoo Finance Live to clarify his reasoning. Levy believes that Tesla has transcended the label of being merely a car manufacturer and warns against overestimating its capabilities due to the hype surrounding AI technology.

SEANA SMITH: Indeed, Tesla stocks have been experiencing significant growth since the beginning of the year, increasing by over 100% due to the excitement surrounding artificial intelligence. However, a notable Tesla supporter has recently reconsidered their stance on the stock and lowered their evaluation. They stated that the recent surge in value fails to address concerns about the company's immediate prospects and financial stability.

We are now joined by the expert who made that prediction, Dan Levy, who is the Senior Autos Analyst at Barclays. Dan, it is wonderful to have you here. You made some excellent points in this message, beginning with the title, which highlights the difficult short-term conditions. Can you elaborate on what these challenges are?

DAN LEVY: Sure. Seana and Jared, I appreciate the invitation. Let me put forth our perspective on the matter. In our opinion, Tesla is currently ahead in the global competition for an electric vehicle (EV) future. We believe they hold a notable advantage in terms of cost. Additionally, we see potential growth in the near future with the introduction of model 2 and the significant scale it can achieve. Moreover, we can't ignore the substantial non-automotive possibilities present for Tesla.

However, I believe there has been a noticeable change in the demand for electric vehicles (EVs) since the beginning of the year. This shift has significantly impacted Tesla's profit margins, which is different from our initial expectations at this time last year. Consequently, we believe that the current increase in the stock value does not accurately reflect these changes. As a result, we have decided to take action [AUDIO OUT].

JARED BLIKRE: Dan, I've come across several analysts' reports discussing the impressive increase in the stock prices of both Tesla and Alphabet this year. This surge was quite surprising, I must say. So, what I mean to ask is, you downgraded your assessment of Tesla, but at the same time, you raised the price target. This isn't something we see every day. Is this simply a gesture of uncertainty, acknowledging that while the price surge was significant, we need to wait and see what happens next?

DAN LEVY: Yeah. I believe that's an impartial perspective. I reckon it can be traced back to the notion that Tesla's valuation has consistently exceeded what was predicted. This also ties into the inquiry of the extent of future growth we should anticipate and the potential ventures outside of the automotive industry for Tesla.

We recognize that there are great chances for growth in the future. In a market that values these opportunities more, we believe the price target should reflect that. However, we also believe that the rating should be connected to the underlying fundamentals of the company. Given the uncertainty surrounding profit margins and the demand fluctuations, including the increased inventories of Model 3, we felt it was essential for the analysis to take these factors into account.

SEANA SMITH: Dan, continuing from your previous statement about the current demand situation and our present circumstances, it is clear that things have turned out differently from what we anticipated a year ago. What can we infer from this regarding the stance of other prominent EV manufacturers and traditional automobile giants like Ford and GM? We are aware that these two companies are heavily committed to the EV sector and have made it a top priority.

DAN LEVY: Absolutely. Thank you. It's a very valid observation because the manner in which we have classified and depicted it is that we have truly witnessed a change from a time of immense excitement surrounding electric vehicles (EVs), which had completely consumed the industry in the past few years, correct? Therefore, if you were to tally up, for instance, the financial goals set by other car manufacturers in the West for EVs, the intended expenditures, to be precise.

In recent times, car manufacturers have made a combined commitment of more than five hundred billion dollars towards electric vehicles. I believe that a portion of this investment was driven by a general excitement surrounding EVs in the market. However, we have now witnessed a shift in those expectations.

There have been significant transformations in the past six months or so. Firstly, we have transitioned from a market where the supply was limited to one where the demand is limited. Previously, we believed that the demand was boundless, but that is no longer true. Secondly, capital markets, which were once accessible with abundant funding opportunities, have now closed off.

And now, the final part is that we have transitioned from a market that was willing to ignore the financial losses associated with electric vehicles (EVs), we were willing to financially support these losses. However, this is no longer the situation. So, when we analyze other automobile manufacturers, such as Ford and GM, even though we believe they are still fully dedicated to embracing an EV-driven future, we acknowledge that this is the path they are taking. The amount of money being invested in their EV products is evidence of this commitment. Nevertheless, we anticipate that the progress in this area might be slightly slower than what they have previously stated. Some of the sales targets they have set will not be achieved, as they will be proceeding with caution at a more restrained pace.

JARED BLIKRE: You mentioned Ford and GM, and it's noteworthy that they are now embracing Tesla's charging standard. This is quite significant, considering that Tesla had been the sole provider of this unique standard. We often recognize Tesla as more than just an automaker, and it seems fitting that they are establishing themselves as an infrastructure company as well.

DAN LEVY: Absolutely. That's a valid argument. We genuinely acknowledge the significance of these charging announcements in driving the rally. We believe that this serves as a favorable confirmation for Tesla. Moreover, it is a positive development for the entire industry to witness the adoption of a consistent charging standard. We have observed other players also embracing this practice.

However, we believe that for Tesla, this revenue is still relatively insignificant. By 2030, considering the slower introduction and production of electric vehicles by Ford and GM than what they have projected, it could mean that Tesla has the potential to generate a revenue of several dollars in their charging business. While this is a decent amount, it is only a small fraction of Tesla's overall revenue, which currently stands at nearly $300 billion. In fact, it amounts to just about 0.3% of their total revenue. So, it can be considered as relatively inconsequential. Nevertheless, it does serve as a confirmation of the effectiveness of Tesla's approach, thus making it a possibility.

SEANA SMITH: Okay. Dan Levy, we must conclude our discussion here. Once again, Tesla's rating has been lowered to equal weighting, but the price target has been increased by 18% to $260 per share. Appreciation to Dan Levy, Senior Auto Analyst at Barclays for sharing his insights.