Shares of Tesla (TSLA 1.14%) tanked on Monday, following the company's release of its first-quarter vehicle production and deliveries data. While deliveries grew nicely year over year, it apparently wasn't enough to excite Wall Street. As analysts digested the report, their published viewpoints on the update have been mixed. Some analysts were pleased with the 36% year-over-year growth. But others admitted that the nearly 423,000 deliveries were underwhelming.
In this article, we'll take a look at one of the more bearish analyst takes following Tesla's update on production and deliveries. One analyst reiterated an underperform rating for the stock and a $150 12-month price target. Here's what's behind his pessimistic view for the growth stock.
More price cuts to come?
Earlier this year, Tesla rolled out major price cuts for its vehicle lineup. This sparked concerns in the media about potential demand softening. But Tesla CEO Elon Musk said in the company's fourth-quarter earnings call that the lower prices were driving a significant surge in orders.
Investors ultimately warmed up to the idea of price cuts, evidenced by the stock's soaring price year to date. Further, part of the price cut was essentially giving back price increases that occurred in the prior year, as higher costs led Tesla to raise prices on its vehicles. As some of Tesla's costs started to normalize more recently, it made sense for the company to pass those savings on to customers through reduced prices. After all, lower prices do typically drive higher unit sales.
But Bernstein analyst Toni Sacconaghi thinks that there are more price cuts to come. He notes that Tesla's vehicle inventory, while still low, has been growing. Further, the wait time between a new order of a Tesla vehicle in the U.S. and the expected delivery window is currently low on all models except Tesla's Model Y, Sacconaghi says. He thinks these things point to signs of a tough demand environment, and potentially more price increases later this year.
With expectations for more price cuts, Bernstein thinks shares are overvalued. His 12-month price target of $150 for the stock implies nearly 23% downside from where the stock is trading at the time of this writing.
There's a good explanation for more inventory
While Sacconaghi's take is worth taking into consideration, investors should note that there's a good reason for Tesla's inventory build. The company explained in its fourth-quarter update that it has been working toward a gradual shift toward a more balanced regional mix of production and deliveries throughout the year. This effort could have led to some inventory build as Tesla prioritizes lower costs over delivery speed when it comes to shipping its vehicles. Given Tesla's effort to better balance and optimize its vehicle shipment process, its inventory of vehicles will likely gradually increase throughout the year.
With this said, more price cuts are certainly possible. If any do occur, investors may want to look for answers from management in earnings calls throughout the year.
