Wells Fargo downgraded Tesla to reduce with tp of USD125 and said to be wary of high valuations and sales risks

Wells Fargo downgraded Tesla to its lowest rating on the grounds that the company may cut prices further, which will affect its profits. The bank's analyst Colin Langan downgraded Tesla's rating from "hold and wait" to "reduce holdings" and lowered its target price from USD200 to USD125. He said that Tesla's overvaluation compared to other "Big Seven US stocks" "may be a risk."

"Although Tesla is a leader in electric vehicles and battery technology, it has not performed well compared to its "Big Seven US" peers," Langan said. He claims that Tesla's price-earnings ratio (PE) of shares is 58 times, while the average PE of these peer companies is 31 times. Furthermore, he pointed out that Tesla shares are traded at roughly 89x PE in Wells Fargo's estimates.

"We are seeing a downside risk in sales as the impact of price cuts is weakening," Langan said. We are seeing headwinds from disappointing deliveries and more price cuts, which could lead to negative revisions to earnings per share."

He added: "Our estimates of earnings per share for 2024 and 2025 are 32% and 52% lower than consensus estimates, respectively."

"Tesla's next major launch is the next generation compact SUV, tentatively called the Model 2, which is expected to be launched in the second half of 2025," Langan added. "The timing of the release is worrying because after abandoning the driverless taxi program, planning seemed rushed and the unboxed process (unboxed) was used for the first time."

Tesla fell even though most of the Magnificent 7 stocks rallied. If the Magnificent 7 stocks fell, then Tesla would really plunge.