Tesla Has Declined Over 20% From Its July High. When Will It Recover?

Tesla has seen a more than 20% pullback since hitting its peak for the year in mid-July, leaving investors eager to know when the stock might recover. Let’s delve into Tesla’s fundamentals and hear from Wall Street analysts.

Tesla has declined 16.4% year-to-date, starkly underperforming the S&P 500 and Nasdaq indices, which have gained 13.9% and 14.5%, respectively. Tesla stands out as the sole member of the Magnificent 7 with a negative YTD return, as the other six have averaged a 40% gain.

Tesla's car sales have declined for two consecutive quarters, reflecting weak market demand and intensifying competition. Tesla's Q1 vehicle sales dropped 8.5% year-on-year to 386,810 units, marking the first decline since Q2 2020. In response, Tesla implemented price cuts and low-interest financing, which helped narrow the sales decline to 4.8% in Q2, outperforming Wall Street's forecast of a 15% drop.

Besides, declining gross margins is a widespread concern in the market. Tesla's gross margin has been under pressure due to frequent price cuts, dropping from 29.1% in Q1 2022 to 18% in Q2 2024.

Amid sluggish sales of its current models, Tesla is developing a cheaper electric vehicle to attract price-sensitive buyers with production set to begin in the first half of 2025.

Tesla is also doubling down on autonomous driving. The highly anticipated Robotaxi project has seen its launch date pushed back from August 8 to October 10. With competitors like Waymo, Zoox, Apollo, Uber, Lyft, and BYD all making strides in the autonomous taxi space, Tesla faces significant competitive pressure.

Elon Musk’s endorsement of Donald Trump following an assassination attempt on the presidential candidate has spurred a rapid rise in Tesla Inc.’s stock. At the end of July, Musk announced he was contributing to a super political action committee supporting Trump’s campaign, though the donation amount was significantly less than the previously reported $45 million per month.

Trump, once a critic of electric vehicles, has shifted his stance following Musk's support. "I'm for electric cars. I have to be, because Elon endorsed me very strongly. So I have no choice," Trump said at a rally in early August, according to Reuters.

Musk and Trump engaged in a conversation on social media platform X on Monday night, where Trump praised Tesla for making "incredible" electric cars. Tesla shares surged more than 5% on Tuesday.

These interactions hint that Tesla could potentially benefit if Trump wins the election.

Looking ahead, approximately 43% of analysts rated the stock as a Buy, 32% as a Hold, and 25% as a Sell. The highest and lowest price targets from institutions differ by nearly $200, about 95% of Tuesday's closing price.

Morgan Stanley remains bullish on Tesla, setting a price target of $310 and naming it the top pick in US auto stocks following its Q2 earnings report. Analysts highlighted "more managed" expectations on autos and powerful emerging drivers of firm value, but cautioned that short-term expectations for Full Self-Driving (FSD) and robotaxi might be overly optimistic.

Truist significantly raised its price target for Tesla from $162 to $215 while maintaining a Hold rating. The firm anticipates lower vehicle unit sales but has increased projections for energy production/storage and Optimus (Tesla Bot). Despite the lack of a "clear catalyst" before the October 10 Robotaxi Day, Truist noted that new product designs such as the Roadster and other more affordable cars could serve as future catalysts.

UBS analyst Joseph Spak described Tesla's current auto lineup as "limited" and suggested that while unit sales may grow, this could necessitate continued promotions. Spak also mentioned that much of the AI potential is already factored into the stock price, and the upcoming Robotaxi Day could turn out to be a sell-the-news event. UBS maintains a Sell rating with a $197 price target.

Goldman Sachs lowered its price target on Tesla to $230 from $248, keeping a Neutral rating. The firm noted weaker-than-expected gross margins in Tesla's auto business, citing headwinds from both pricing/incentives and costs. Goldman Sachs continues to view Tesla as a leader in autonomous technology but expects it will take two to three years to achieve conditionally unsupervised eyes-off capability at scale.

Bernstein retained its Underperform rating with a $120 price target. The firm pointed out a 7% year-on-year decline in automotive revenue, contrasting with a 2% growth in total revenue driven by strong energy storage performance and high regulatory credits. Bernstein noted management's cautious tone during the earnings call and observed that Tesla did not reiterate its previous guidance for automotive unit sales growth this year. Additionally, Bernstein expressed confusion over the necessity of a standalone robotaxi product and questioned Tesla's leadership in autonomy.