Tesla's (TSLA -1.80%) stock price is down 29% year to date due to concerns over a weak outlook for electric vehicle (EV) deliveries amid rising interest rates. These headwinds may continue to weigh on the share price, according to analysts at Wells Fargo.
The firm maintained an underweight (sell) rating on the stock with a price target of $125, representing a potential downside over the next 12 months or so of nearly 29% from Tesla's current share price.
Why the stock is down
Wells Fargo's analyst expects the company to deliver roughly the same amount of vehicles in 2024 as last year -- about 1.8 million. That's a break from Tesla's usual high growth in revenue and deliveries every year.
Tesla still has the highest profit margin compared to the leading car manufacturers, but Wells Fargo analysts are also concerned about the impact of price cutting on Tesla's margins. The consensus estimate calls for adjusted earnings to fall nearly 30% year over year in the first quarter.
Is Tesla stock a buy?
Valuation plays a big role in determining the long-term returns you can expect from a stock. The cheaper the stock sells off in the near term, the bigger the discount between the share price and Tesla's future worth.
The stock may (or may not) fall to Wells Fargo's price target, but the EV market is still in the early innings of growth. EVs are projected to comprise 45% of U.S. vehicle sales by 2035, according to Statista. Tesla's headstart in artificial intelligence (it just released version 12 of its full self-driving software) could lead to growing demand in the coming years, and that should ultimately benefit its revenue growth and stock performance.
