- Tesla stock fell 4% on Monday after the company reported softer-than-expected second-quarter deliveries.
- JPMorgan thinks the decline can continue, as it trimmed its price target to $385, representing 41% downside potential.
- The bank said ongoing shutdowns in Shanghai and execution issues at other Tesla factories are hurting the company's finances.
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In a Monday note, JPMorgan trimmed its Tesla price target to $385 from $395, representing potential downside of about 41% from current levels. The call came after Tesla announced weaker-than-expected second-quarter vehicle deliveries of 254,695 over the weekend.
That's well below the 310,000 vehicles delivered in the first quarter, below JPMorgan's original second-quarter estimates of 315,000, and slightly below consensus estimates of 257,000, which were updated to account for the ongoing Covid-19 lockdowns in China.
"Lower production in Shanghai due to factors outside Tesla's control is likely the largest contributor to the production shortfall pressuring deliveries during the quarter," JPMorgan said.
But further execution issues at Tesla's factories in Austin and Berlin could be hurting both production and financial results, JPMorgan said, pointing to recent comments from Tesla CEO Elon Musk.
Musk said in June that Tesla's Austin and Berlin factories were operating as "gigantic money furnaces," a comment that is reminiscent of Musk's "production hell" comment in 2018 when describing the ramp up of Model 3 vehicles.
"No 8k filing was released in conjunction with these remarks, leaving their modelling implications unclear, but we take it at least that they cannot be positive for second-quarter Bloomberg consensus EPS, which stood at $2.31 in late April," JPMorgan said.
The consensus Bloomberg EPS estimate now stands at $1.82.
Because of Musk's comments, combined with Tesla's second-quarter delivery miss, JPMorgan lowered its second-quarter EPS estimate to $1.70 per share.
"We suspect that the interplay of price and cost may matter most for Tesla earnings this year. This interplay we believe presents downside risk to 2Q, given that Tesla experienced sharp battery metals inflation but the price hikes of upwards of $10k announced across its lineup generally apply only to new orders and not to existing reservations," JPMorgan explained.
JPMorgan has long held a bearish view on Tesla, consistently having the lowest price target on the electric vehicle company among major Wall Street banks. And while its bear thesis has not played out, Tesla stock has seen considerable weakness amid the ongoing bear market in stocks.
Tesla stock is down 35% year-to-date, and is down nearly 50% from its record high.