Stifel analyst Stephen Gangaro recently cut his price target on Tesla (TSLA 0.65%) to $450 from $455, maintaining a buy rating on the stock. A price target cut is never great news, but it’s not a material reduction, and the target still implies a 73% upside over the next 12 months.
A balanced approach
The reasoning behind a buy rating on Tesla is sound, and the analyst’s balanced approach makes sense. Tesla indeed faces near-term headwinds, but it’s also true that it has near-term catalysts that could drive a re-rating for its stock.
To management’s credit, it acknowledged that Tesla has near-term issues relating to tariffs and brand image, and deliveries were weaker than expected in the first quarter, partly due to not having enough new Model Ys (the best-selling car in the world in 2024) due to losing a few weeks of production as Tesla shifted production to the new model.
Near- and long-term catalysts
On the other hand, unless you are buying undervalued contact lens stocks, myopia rarely pays off when investing. As the analyst notes, Musk announced he would spend more time on Tesla starting in May. Management confirmed Tesla is on track to release lower-cost models this year, the Cybercab is still on track for mass production in 2026, and the “robotaxi” — initially a Model Y with fully autonomous full-self driving (FSD) — will be in Austin in June.
In addition, on the earnings call, CFO Vaibhav Taneja noted that “we were able to sell out legacy Model Y in the U.S., China, and a few other markets within the quarter.” That’s a major plus and could help margins as Tesla won’t need to give incentives to sell legacy models anymore, and it should firm up pricing and demand for the newer model.
These potentially positive near-term events could lead to the market pricing in the long-term benefits (ride share revenue from robotaxis, brand development, increased sales and deliveries due to new models, and recurring revenue from FSD). If we throw in a resolution to the tariff conflict, there’s potential for upside for Tesla stock.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.