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After lingering deep in the negative gains zone throughout the year, Tesla (NASDAQ: TSLA) is on the brink of a positive year-to-date performance. Presently priced at $241.82, TSLA stock is at the early January level, 12% above its 52-week average of $215.85 per share.
The culprit for the positive reversal comes from Tesla’s Q2 deliveries speculation this week, having exceeded expectations.
While some forecasts placed the figure between 415,000 – 425,000 range, settling on the consensus of 439,000 per FactSet, Tesla took the market by surprise with 443,956 EVs delivered and 410,831 vehicles manufactured.
Although this beat Wall Street estimates, the effective sales figure still represents a 4.8% year-over-year decline. The quarterly 14.8% deliveries rise from Q1, however, boosted investor confidence. With year-to-date performance of TSLA shares now at -1.72%, is this a turning point for the company?
Tesla’s Revised Price Targets
Wedbush Securities investment firm was among the first to up the ante. The company’s Senior Equity Research Analyst Daniel Ives boosted TSLA stock prospect by 9%, from $275 to $300 as the new price target 12 months ahead.
This would constitute a 24% performance gain from the price level of $241.82 at press time. Tesla is expected to report its Q2 2024 earnings on July 23rd.
Across 32 analyst inputs pulled by Nasdaq, the average TSLA price target is $180.92, with the high ceiling of $310 per share. For Ives, the most bullish price target is $400 in 2025. The question is, which factors could thwart or even exceed such expectations?
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The Fed’s Rate Cuts: Boon or Negative Indicator?
On Tuesday, Federal Reserve Chair Jerome Powell was once again the star of the macroeconomic show. Powell noted that inflation is likely on a downward, disinflationary path, but this is yet a certainty. He summed up the quandary the central bank faces as one of timing.
“We’re well aware that if we go too soon, that we can undo the good work we’ve done. If we do it too late, we could unnecessarily undermine the recovery and the expansion.”
Powell refrained from setting any specific dates to avoid stirring the market’s animal spirits but fed fund futures priced in three interest rate cuts by the end of the year. According to CME FedWatch, the first one in September has a probability of 80.78% at press time.
The hiking cycle since March 2022 had a great deflating effect on both stocks and digital assets, leaving many to likely never reach their all-time highs. In October 2023, Elon Musk noted that the hiking cycle exacerbated the consumer credit situation, endangering Tesla’s bottom line due to its cyclical nature.
“I think there’s still quite a few shoes to drop on the bad credit situation. Commercial real estate, obviously, is in terrible shape. You know, credit card interest rates are usurious with over 20% interest rates, which, over time becomes extremely punishing.”
However, those shoes may yet drop despite the high probability for rate cuts. According to recent Redfin analysis of the U.S. Census Bureau data, newly built apartments are filling up at the lowest pace since 2020, with less than 47% getting rented.
Combined with $2.1 trillion worth of excess savings turning into negative $170 billion, and the rise in debt delinquencies of all types, including auto loans, it may well turn out that rate cuts needed to stimulate the economy will be insufficient to bolster Tesla’s growth.
China Competition and Robotaxi Evolution
Tesla’s decline in Q1, the first one since 2020, was mostly attributed to Chinese automakers forcing aggressive price cuts, resulting in lower average selling price of Tesla EVs—moreover, Red Sea disruptions compounded on multiple shutdowns of Gigafactories in Berlin and Fremont.
The mass recall of Cybertrucks further eroded the public’s perception of Tesla. Yet, this had a surprisingly muted impact on Tesla stock, suggesting that its branding is still strong. Ahead of Q2 earnings on July 23rd, TSLA shareholders are counting on the August 8th robotaxi announcement.
Elon Musk overestimated Full Self-Driving (FSD) deployment by roughly eight years. Since the autopilot feature was introduced in 2014, it has lingered in the marketing gray zone. Effectively at SAE Level 2, it must reach SAE Level 4 to be accurately described as FSD. At the end of May, first major inkling in that direction was revealed.
China’s Ministry of Industry and Information Technology approved Tesla’s software FSD registration, recently approving the FSD testing itself. This is likely because Tesla could license FSD tech to Chinese automakers. Not only would that open a new source of revenue but Tesla would gain valuable data from a more tech-friendly regulatory environment in China.
If FSD finally lives up to its name, Cathie Wood’s forecast for TSLA shares to reach $2,600 by 2029 may materialize. Tesla could evolve into an autonomous ride-hailing company, potentially generating 63% of the company’s revenue, according to Wood’s reasoning. For the time being, Wood shares optimism with Wedbush analyst Ives by positioning the TSLA price target at $350 per share.
Do you think Tesla should tone down the bells and whistles of its EVs to bridge the affordability gap? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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