Back in December, I said my share price target for Tesla (NASDAQ: TSLA) stock in 2024 was $154. That price may have sounded a bit crazy back then, as the stock was trading near $240 (more than 50% higher) at the time.
Fast forward to today however, and my price target is looking pretty good. After a big fall this year, the stock’s now less than 10% away from $154.
The valuation was too high
In December, I noted Tesla was facing many short-term risks. And this year, we’ve seen these play out.
One potential risk I highlighted was a slowdown in the electric vehicle (EV) market due to lower levels of ‘big-ticket’ spending from consumers and shifting attitudes towards EVs.
We’ve certainly seen this in 2024. For the first quarter, Tesla reported vehicle deliveries of 386,810, a drop of 8.5% from the same quarter last year and well below the consensus forecast of 457,000.
Another risk I highlighted was increasing competition from rivals. And we’ve seen this too.
For example, last month, smartphone manufacturer Xiaomi announced the launch of its new SU7. This EV – which is designed to go head to head with Tesla’s Model 3 – received 50,000 orders in just 27 minutes.
Given the risks, I said that I thought Tesla’s valuation was way too high (its price-to-earnings (P/E) ratio was around 70 at the time). This year, we’ve seen the valuation come down.
Further share price weakness ahead?
As for the outlook for Tesla stock from here, I suspect things may get worse before they get better.
Currently, the P/E ratio using the consensus earnings forecast for 2024 is just under 60. The multiple still looks too high to me. I think it needs to come down further given the challenges the company is facing.
It’s worth noting that many brokers are reducing their price targets for Tesla. For example, Bernstein recently took its price target to $120 from $150 (and kept an ‘underperform’ rating on the stock) while Wells Fargo made Tesla a ‘tactical underweight’ (sell) and gave it a price target of $125.
I think these targets make sense in light of the challenging near-term backdrop.
Long-term growth story
Now, I’ll point out that I do see reasons to be bullish on Tesla in the long run. What interests me is the company’s ‘Dojo’ supercomputer.
This technology – which is being used to train Tesla’s Full Self-Driving (FSD) system – has been described by fund manager Cathie Wood as the “largest artificial intelligence project in the world”.
I’m also excited by the opportunities linked to autonomous driving. If Tesla can pull off its FSD goal, its revenues (and share price) could explode.
I’m not rushing to buy the stock today however. At current levels, the EV company’s too expensive for me from a valuation perspective.
