Barclays cuts Tesla stock target on expectations of negative Q1 earnings call

In anticipation of Tesla (NASDAQ:TSLA)'s upcoming Q1 earnings call, Barclays has revised down its stock target for the electric vehicle giant, reflecting concerns about potential challenges and performance metrics that could impact the company's financial performance and outlook. 

This adjustment underscores growing apprehensions as Tesla prepares to report its quarterly results amidst a slowdown in electric vehicle demand and broader economic uncertainties. The revised target highlights Barclays' cautious stance on Tesla's near-term prospects and could influence investor sentiment leading up to the earnings call.

1Q earnings call ‘one of the most widely anticipated calls ever’

Barclays described Tesla’s upcoming earnings release as possibly “one of the most widely anticipated calls ever, as Tesla is facing an investment thesis pivot.”

The call is highly anticipated, with Tesla typically facing any number of large strategic questions and challenges. 

“Up until several weeks ago, the key focal point into the 1Q result was Tesla’s vehicle sales fundamentals, with Tesla facing an extremely challenged set-up amid a sharp delivery miss, risk of no growth in volume in 2024, and further pressure to margins,” said Barclays. 

All of these factors imply significantly negative EPS revisions ahead, according to the bank. However, they acknowledge that Tesla’s “deeply challenged near-term fundamentals” are taking the backseat to a much larger issue. 

“Tesla is facing an investment thesis pivot,” stated the bank. They explained: “Specifically, the central focus of the call will be to understand Tesla’s forward strategy as Tesla is seemingly pivoting away from its plans to produce a mass market vehicle (Model 2), and is instead focusing its efforts on autonomous driving.”

Barclays also highlighted recent news for Tesla, including a large round of layoffs, departures of key executives, and a “subsequent report validating the cancellation of Model 2. 

They also highlighted a comment by Elon Musk on his X platform yesterday, which read: “Not quite betting the company, but going balls to the wall for autonomy is a blindingly obvious move. Everything else is like variations on a horse carriage.”

Barclays cuts Tesla stock target

Given the various concerns, Barclays cut its Tesla price target to $180 from $225 per share, maintaining an Equal-Weight rating on the stock. 

Assessing the release, they expect the electric vehicle giant to miss first-quarter expectations amid soft margins, although they note that expectations are low. 

Nevertheless, the bank expects the 1Q print to be a negative catalyst for Tesla stock for several reasons.

Firstly, they expect little commentary from Tesla to dissuade investors that near-term fundamentals remain weak, while they also believe free cash flow may be negative, marking the first quarter since 1Q 2020 of negative free cash flow. This could result in a “shock factor,” according to Barclays.

“While investors will enter the call with significant questions on Tesla’s strategy, we believe many of these questions may be unanswered,” Barclays wrote. And with significant uncertainty remaining on the investment thesis, it could lead investors to capitulate.”