It’s the Year of the Rabbit in China and one analyst said he sees the global auto industry “hopping from worry to worry” in 2023. Amid all the headwinds, he recommends investors own
stock following its “share price collapse” due to “misguided pricing concerns.” He feels differently about shares of
Berenberg analyst Adrian Yanoshik upgraded shares of
(ticker: TSLA) to Buy from Hold and downgraded shares of General Motors to Hold from Buy.
He cut his Tesla price target to $200 from $255. His General Motors price target goes to $41 a share from $45.
“Affordability and demand concerns rise, adding to supply-chain risks,” wrote Yanoshik in his research report. “We think that a softer demand picture in 2023 is increasingly likely.”
Rising interest rates and inflation have made monthly car payments more expensive. Automotive loan delinquencies in the U.S. have been rising. What’s more, some of the inflation that automotive companies passed on to consumers in 2022 will be felt by them in 2023. Yanoshik sees prices from suppliers to auto makers rising in 2023 while car prices start to fall.
Because of these headwinds, he downgraded shares of GM to Hold “to reflect caution in the mass-market segments” of the auto market.
He still sees opportunity to Buy Tesla stock. Tesla’s recent price cuts will impact profitability, but he expects margins to improve through 2023 as production improves and lower pricing boosts demand. “Longer term, we expect Tesla’s cost structure and product momentum to retain high-teens operating margins, even while it grows output from higher-cost plant locations.”
What’s more, he sees the potential for demand in China to hold up as Covid impacts fade. Tesla generates roughly 25% to 30% of its sales in China.
It also doesn’t hurt that Tesla’s valuation has returned to earth, added Yanoshik. Tesla shares have declined about 37% over the past 12 months, leaving the stock trading at 19 times his 2025 earnings estimate and “the upside to our discounted cash flow-derived price target, which incorporates sales of 7 million vehicles annually by 2030.”
With the upgrade, about 65% of analysts covering Tesla shares rate them at Buy. That’s the highest Buy-rating ratio for the stock in more than eight years, according to FactSet. The average Buy-rating ratio for stocks in the
is about 58%.
The average analyst price target for Tesla stock is at about $190 a share. The average analyst price target for GM stock is about $47. About 54% of analysts covering GM stock rate shares a Buy.
GM stock was down about 2% in premarket trading Monday. Tesla stock fell 0.4%. S&P 500 and
Dow Jones Industrial Average
futures were down about 0.9% and 0.6%, respectively.
Coming into Monday trading, GM stock has added about 13% this year. Tesla shares have added about 44%.
Write to Al Root at email@example.com