Goldman Sachs has recently downgraded Tesla's stock rating from "Buy" to "Neutral", setting a target price at $248. This decision continued Tesla's downward trend from last week, as the stock fell by more than 5% on Monday, dipping to approximately $243.
Goldman Sachs' rating downgrade for Tesla was primarily driven by valuation. It's worth noting, however, that Goldman Sachs actually raised its target price for Tesla from $185 to $248, reflecting the stock's recent upswing over the past few months.
Goldman Sachs maintained that given Tesla's leading position in the electric vehicle and clean energy markets, the company has a favorable position for long-term growth. However, it also noted that the valuation has been reflected in the stock price. Analyst Mark Delaney and his team argued that the market valuation of Tesla has exceeded the stock's long-term opportunity after its recent dramatic rebound.
While still bullish on the electric vehicle industry, Goldman Sachs continued to see the most investment opportunities among a broad array of suppliers, especially those with a higher content necessary for electric vehicle and electrification transformations.
However, Goldman Sachs also cautioned that the difficult new car pricing environment could hurt Tesla's non-GAAP gross margin in 2023.
Goldman Sachs isn't the first major Wall Street firm to downgrade Tesla's rating in recent weeks. Last week, Morgan Stanley and Barclays also downgraded Tesla's ratings.
Morgan Stanley downgraded Tesla from Overweight to Equal-weight, raising its target price from $200 to $250, to reflect the upward momentum in recent months. Morgan Stanley believed that previous increases have pushed Tesla's stock price to a "reasonable" level.
Barclays downgraded Tesla from Overweight to Equal-weight, with a target price of $260. Barclays analysts stated that Tesla's rise was too fast and too large. While they were not surprised to see Tesla's stock participate in the rebound, they believed that it would be prudent to watch from the sidelines.
Tesla has seen a strong rebound since the start of this year, with its stock more than doubling, allowing Elon Musk to reclaim his seat as the world's wealthiest person. Meanwhile, Wall Street Journal reported that Tesla short sellers who bet wrong this year lost 78%, with total losses amounting to $12.4 billion.
Tesla's surge was associated with several carmakers joining its charging network, positioning Tesla to potentially "unify North America" with its charging stations. Amid the AI boom, the market was full of expectations for Tesla's self-driving technology, FSD, positioning it at the "front of the pack." Furthermore, China's continuation and optimization of tax relief policies for new energy vehicles, which will amount to CNY 520 billion from 2024-2027, also buoyed Tesla's stock price.
However, Tesla's recent bullish trend showed signs of running out of steam, with the stock falling over 10% from its peak in just a few trading days.
This month, Musk stated that Tesla's market value will be determined by its self-driving technology. "The potential of self-driving is so large that even if you discount the possibility of it ultimately being realized, it's still very valuable," he noted.
