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Citi cuts Tesla stock target, urges investors to be patient

Published 12/04/2024, 13:40
© Reuters

Tesla (NASDAQ:TSLA)'s stock has had a tough 2024. Elon Musk's pronouncements have kept investors on their toes, while recent reports and announcements have also resulted in some share price volatility. 

First came the news, reported by Reuters, that Tesla was shelving its plans for the affordable Model 2, a car many analysts saw as key to broadening the brand's appeal. The report stated that Tesla would continue developing robotaxis. However, Elon Musk denied the claims that the low-cost car plans were being scrapped. 

Later that same day, he tweeted that the much-anticipated robotaxi would be unveiled on August 8 without providing any further details. 

After initially dropping following Reuters’ initial report, Tesla shares have gained around 2.7% in the last week of trading, recovering those losses. Whether it can continue to move higher is another question. However, analysts at Citi remain cautious. 

Citi slashes Tesla stock target

In a note to clients this week, the investment bank cut its target for Tesla stock to $180 from $196 per share, telling investors that they are awaiting a more convincing entry point.

“We’re updatng our Tesla model to reflect the Q1 delivery miss and early-April data,” wrote Citi. 

The brokerage firm also provided its thoughts on the potential robotaxi unveil, stating that they can see two scenarios. 

The first is an event that feels similar to the 2019 Autonomy Day, in which “Tesla reveals a purpose-built RoboTaxi but without a convincing deployment path, leaving open questions about how Tesla will compete with the likes of Waymo/Cruise/Motional in dense urban domains.”

If such a scenario were to follow a formal pushout of the “Model 2” next-gen EV, then Citi believes this will likely prove disappointing to investors.

The second scenario is an event introducing a RoboTaxi along with a more convincing deployment path. 

“This convincing can come from deep-diving FSD/AI performance gains, but also from approaching deployment somewhat differently,” Citi explained.  

They believe that if the August 8th event delivers a credible and perhaps differentiated deployment strategy, that could emerge as a positive for the stock. 

“Finally, while debatable, we do think the read-through from Tesla’s added emphasis on RoboTaxi/AV is generally positive for the broader AV space (MBLY, GM/Cruise),” added the bank. Citi advises watching for RoboTaxi unit economics, launch timing, volume and targeted

AV performance, the deployment strategy, and incremental research and development needs.

Overall, when assessing Tesla, Citi feels that given the near-term demand headwinds, there is more downside than upside ahead. The firm also trimmed its long-term estimates.

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