Tuesday, July 23, 2024

‘The worst is in the rear-view mirror’: Why Wall Street thinks Tesla’s comeback story is finally here

Elon Musk in front of a blue background holding his hands together

Tesla CEO Elon Musk at a conference in May.FREDERIC J. BROWN/AFP via Getty Images

  • Tesla stock had a tough first half of 2024, but Wall Street is eyeing a turnaround.

  • Second-quarter deliveries were down but weren’t as bad as analysts had expected.

  • Now all eyes are on its Robotaxi and AI initiatives as the next phase of growth commences.

After a rocky stretch for Tesla stock and a lot of drama surrounding Elon Musk’s legal battles, the electric-vehicle maker could finally be poised for a comeback, according to a chorus of Wall Street analysts.

Investors have been eyeing a potential rebound in the stock for more than a year, with Tesla sales having slid by 15% over the past 12 months. Tesla deliveries slumped for the second quarter in a row, but they were stronger than analysts had expected, clocking in at 443,956 compared with estimates of 436,000.

Those figures could be a sign that better days are ahead for the carmaker, especially as Musk puts the “soap opera” surrounding his pay package to bed and investors eye artificial-intelligence developments on the horizon.

“Tesla getting its mojo back?” Morgan Stanley strategists said in a note on Tuesday. “Little more than 2 weeks ago our clients were preparing for shareholders to reject Elon Musk’s 2018 comp package potentially setting up a change of management and strategy, compounding many months of negative newsflow. Fast forward to today, clients are beginning to ask us about positive catalysts into 2Q results and beyond.”

Tesla also reduced its inventory over the second quarter and boosted its energy storage to an all-time high. The strategists said the higher energy storage was a “show stealer” update, as it suggests Tesla could benefit from increased energy demand stemming from the AI boom.

“As Gen AI acceleration spurs a multigenerational increase in energy demand, electricity generation, and data center investment, we believe investors will begin to pay more attention to Tesla Energy which we value at $36 per Tesla share ($130bn) as the business uniquely positioned to benefit from investment in the US electric grid accelerated by the AI boom,” they said.

Morgan Stanley reiterated its “overweight” rating on Tesla stock with a price target of $310, implying another 30% upside.

“The stock continues to ride a wave of positive momentum following its annual meeting in mid-June,” said Garrett Nelson, a senior stock strategist at CFRA Research, adding, “We think Musk successfully shifted investor focus to long-term opportunities in AI, robotics, energy storage, and other business lines, diverting attention away from near-term challenges.”

Nelson added that Wall Street was focused on Tesla’s Robotaxi, the full self-driving service Musk has teased for months and has said could be a “massive driver” of future growth.

CFRA maintained its “buy” rating on the stock and raised its price target to $250 a share, implying just 1% upside.

Other strategists had even more bullish calls following the better-than-expected deliveries figure.

“I think the stock is going to double or triple, maybe even more, in the next few years. And again, we’re early innings,” Keith Fitz-Gerald, the principal of Keith Fitz-Gerald Research, told CNBC on Tuesday, adding: “This is about power. This is about robotics. I think it perhaps is the best undervalued AI play on the planet right now. And love him or hate him, Musk knows what he’s doing.”

The Wedbush Securities analyst Dan Ives previously said Tesla could see a sharp rally in the second half of the year, as the Robotaxi’s debut represents a turning point for the company.

Wedbush reiterated its “outperform” rating on Tesla and raised its price target to $300 a share. Ives said that in the most bullish scenario, Tesla stock could rally to $400 by the end of the year, implying 63% upside from current levels.

“The key for Tesla stock is the Street recognizing that Tesla is the most undervalued AI play in the market in our view,” Ives said in a note, later adding, “In a nutshell, the worst is in the rear-view mirror for Tesla as we believe the EV demand story is starting to return to the disruptive tech stalwart ahead of a historical Robotaxi Day on August 8th.”

Tesla shares surged by as much as 10% on Tuesday after it reported deliveries, and they pushed 6% higher on Wednesday to trade at about $246. The stock has reversed nearly all the losses it’s seen in 2024, with shares down by less than 2% in the year to date.

Read the original article on Business Insider

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