- Bank of America cuts its Tesla price target on Wednesday following the company's big first-quarter delivery miss.
- The bank said it has concerns about weakening demand for EVs as Tesla's inventory builds up.
- "We see it hard for the company to generate additional sales with its current product portfolio or without cutting price further."
Bank of America slashed its price target for Tesla stock as concerns grow about a potential demand problem for electric vehicles.
The bank set its new price target at $220, representing a 21% decline from its prior price target of $280, according to a Wednesday note. The price target still represents 28% upside for Tesla stock based on current levels, though the bank rates the company at "Neutral".
The cut to Tesla's price target comes one week after the company announced first-quarter deliveries, which came in considerably below what Wall Street was expecting.
While Tesla blamed supply disruptions for its first-quarter delivery miss, including a fire at its Berlin factory and a production ramp of the new Model 3 at its Fremont factory, Bank of America put some of the blame on falling demand for its products.
"Inventory built up in 1Q and it appears that the primary driver of the softer delivery numbers was declining demand for electric vehicles across geographies, especially in North America, where EV sales volumes have been largely flat since the summer of 2023," the bank said.
To jump start growth, Tesla either needs to refresh its product lineup or start to cut its prices again.
"We think that Tesla will face mounting profit pressure from a weaker demand environment. Unless TSLA taps into new geographical markets, we see it hard for the company to generate additional sales with its current product portfolio or without cutting price further," the bank said.
The Cybertruck isn't expected to be a high-volume vehicle as compared to their strong-selling Model 3 and Model Y, and a low-priced model of its car appears far away.
"This leaves pricing as the main lever to stimulate demand (which we note has not worked very well so far). Volume growth remains one of the company's key priorities, implying that more price discounts could happen," the note said.
Finally, one risk for Tesla is the fact that it sells direct to consumer, rather than relying on a network of dealerships. That means climbing vehicle inventories are held on Tesla's books, which could weigh on the company if inventory is not cleared out.
In the first quarter, Tesla produced 46,561 more vehicles than it sold, and Bank of America estimates that the company has a cumulative total of about 150,000 vehicles sitting in inventory.
"We think it rather unlikely that the company can efficiently manage much higher levels of inventory," Bank of America said, adding that the risk of a production cut in 2024 of Tesla's high-volume models is real.
Tesla stock fell 3% on Wednesday and is down 31% year-to-date.