Tesla Best Short Idea For 2024, Bernstein's Toni Sacconaghi Says

There haven't been too many semi-reputable sell side names that have thrown in the towel on Tesla publicly, but that's exactly what Bernstein is doing. 

Analyst Toni Sacconaghi, instead of just cutting his price target on the name and giving it an underweight rating - which he's done - also has the firm convinced that Tesla is the best short recommendation for 2024. 

Sacconaghi highlighted in a recent client memo that 2023 has been notably challenging for Tesla, reminding his readers that the EV company finished the year with its 2023 EPS about 50% below estimates for the year. Despite this, the stock has doubled, he points out. 

But Berstein thinks the company has a demand issue that will mire its stock heading into 2024 and they argue that street estimates for 2024 are "too high" for the EV company.

Sacconaghi projects a fiscal year 2024 EPS of $2.59 for Tesla, which stands in contrast to the consensus estimate of $3.34.

“To stimulate demand Tesla had to dramatically cut price in FY 23, and we believe will need to do so again in FY 24," the note says, predicting further aggressive pricing heading into the new year. 

The note makes the point that Tesla's current lineup of electric vehicles is reaching a market saturation point and facing heightened competition, which will add to the need for price cuts. 

Sacconaghi also predicts no significant new high-volume products from Tesla until 2026. The launch of the Cybertruck is expected to cater to a niche market, potentially creating a 1% drag on Tesla's gross margins in 2024, he said. 

Current analyst estimates predict that Tesla will increase its unit sales by over 400,000, while keeping prices relatively stable and enhancing automotive gross margins by upwards of 200 basis points.

Bernstein noted that to achieve year-over-year growth of about 485,000 units in 2023, Tesla was slashing prices by 16%. This move has significantly strained the company's automotive gross margins, reducing them by 750 basis points, which Bernstein thinks will continue into 2024. 

The note asks: “Given the disconnect between Tesla’s FY23 financial vs. stock performance, investors may ask “why now and what will be different in 2024?” Our belief is that Tesla’s valuation has been supported by growth expectations, even as margins have eroded.”

“We expect delivery and revenue estimates for 2024 and 2025 will come down materially. While significant downward EPS revisions had no impact on TSLA’s stock this year, we believe a waning of the growth narrative could weigh on the stock’s multiple (currently ~75x 2023 earnings, well above higher margin, growth stock peers),” the note concluded. 

Full note with additional charts available to Pro Subscribers in the usual place.