Tesla stock rallied in a big way on Thursday after several price target updates, vastly outperforming the U.S. stock market, which also rallied. Tesla Inc. (NASDAQ:TSLA) shares are up another 3% this morning as analysts debate how well the company will be able to weather the coronavirus storm.
Tesla stock price target cut
In a note earlier this week, Canaccord Genuity analyst Jed Dorsheimer said he reduced his price target for Tesla stock and slashed his estimates based on fallout from the coronavirus pandemic. He noted that it will take weeks or even months to see the full impact of COVID-19, but for now, he believes there is enough anecdotal evidence for him to reduce his estimates. His price target for Tesla stock falls from $750 to $400 a share, and he maintains his Hold rating.
He sees the impact of the coronavirus on the company in two tranches. The first is China production and demand, and the second is U.S. production and demand. He downgraded Tesla stock last month due to weaker demand in China, combined with the halted production in Shanghai during the height of the outbreak there.
Reuters reported that data from auto consultancy LMC Automotive indicated that registrations for Tesla vehicles in China declined 35% last month. Total auto sales plummeted 79.1% last month, which is the largest monthly decline ever. Data from the China Passenger Car Association seems to conflict with the data from LMC Automotive because it indicated that Tesla sold about 3,900 vehicles last month, which is an increase from 2,620 vehicles in January. The two organizations use different methods to count vehicles.
U.S. factory impacted
In the U.S. earlier this week, the Alameda County Sheriff’s office stated that Tesla isn’t an “essential business,” meaning it shouldn’t keep operating during the shelter-in-place health order. The automaker seems to be challenging that ruling, although it cut its staff from 10,000 employees to 2,500 employees at the Fremont factory this week. The health order ends on Apr. 7.
Although Tesla had started to deliver the Model Y to buyers, and it can continue making deliveries in areas outside the shelter-in-place zone around its factory, Dorsheimer expects to see meaningful impact to first- and second-quarter earnings results. His new price target for Tesla stock is based on 20 times his new 2021 earnings estimate of $20.23 per share, which is a reduction from the previous multiple of 30 times.
Tesla has enough cash
At least two analysts upgraded Tesla stock on Thursday, which sent shares skyrocketing. One of those analysts was Morgan Stanley analyst Adam Jonas, who upgraded Tesla stock to Equal Weight but cut his price target from $480 to $460 per share. He said the company is financially strong enough to weather the coronavirus storm.
He said that even in a “draconian scenario,” which would bring a 90% drop in demand, Tesla would burn $750 million each month. However, the automaker has approximately $8 billion in cash on its balance sheet following the recent capital raise. Jonas believes Tesla stock has fallen enough that investors can start adding back exposure to the shares. The stock was down 60% from its February high of more than $900 per share.
Bank of America analyst John Murphy was the other analyst who upgraded Tesla stock this week. He feels that after the recent decline, the shares are now attractive. He moved to a Neutral rating with a $500 price target due to valuation. However, he also added the caveat that investor optimism around Tesla is still “overhyped,” and he still sees “a litany of risks” as “underappreciated.”