An analyst at investment firm Berenberg has downgraded Tesla’s stock rating from buy to hold, following an unexpected series of price cuts and an Investor Day which drew mixed reviews from investors and shareholders.
Analyst Adrian Yanoshik offered several reasons for the change. First, he noted that the company was facing more competition in the electric vehicle space than ever before, with the most aggressive pushback coming from legacy automakers. These other brands are also introducing a variety of models, such as pickups, and often at lower prices, which has served to bring more customers into the market but not to Tesla’s advantage. The Berenberg expert also noted that interest rates were rising, with little end in sight as the Federal Reserve continues its disinflationary measures. Yanoshik argues that these two factors have left little wiggle room for investors, making above-market expectations more risky, saying, “Valuation now leaves less room for disappointment.”
The other reason is the prolonged absence of a budget-friendly Tesla model. While EVs are expensive to build, the automaker’s luxury style pricing has kept many would-be buyers out of the market. While competitors also struggle with high manufacturing costs, they have nevertheless introduced cheap models specifically to target Tesla’s market share, although they may deny it. Rumors that a lower priced vehicle would soon be revealed were also dispelled at the brand’s latest “Investor Day,” during which zero new products were announced, aside from vague references. Yanoshik estimates it will take several years for the company to introduce and profit from such a model. Although the potential of an eventual payout is strong, the length of time it takes to arrive may make it difficult for investors to justify, especially if the analyst’s prediction is true.