Tesla (TSLA -1.11%) did its part in the "Magnificent Seven" in 2023, playing an outsized role along with the other six stocks in driving the market higher. In 2024, its role appears much diminished as the stock is down. It might have even further to fall in the near term as sentiment about Tesla is turning negative. Wells Fargo analyst Colin Langan recently downgraded the stock to the equivalent of a sell rating and cut his firm's price target to $125.
Langan previously had a hold rating on Tesla with a price target of $200 per share. Tesla shares have already dropped roughly 30% in 2024 as lagging demand and competition for electric vehicle (EV) buyers have eroded profits.
Is it time to sell Tesla?
If Langan is right, Tesla shares will reach a level last seen in January 2023. While Tesla continued to ramp up production and sales during 2023, it was also a year of rising competition. That led to price reductions on its electric cars to help spur sales. The result was higher revenue as volume grew compared to 2022, but lower profit margin and free cash flow.
Langan and his team think that trend will continue in 2024. In a note to clients, he wrote "We expect volume to disappoint as price cuts are having a diminishing impact on demand." He believes the result will be lower-than-expected vehicle deliveries and sees 2024 net earnings coming in more than 30% below current analyst estimates.
Most notable is the fact that the analyst now sees vehicle delivery volume flat in 2024 versus 2023. Tesla delivered about 1.8 million EVs last year. Langan also projects that level will remain the same for 2025 as well.
If those projections turn out to be accurate, it's likely that he will be proven right that Tesla stock can drop another 28% from its current level.
