Tesla Stock Target Cut, Ford and GM Stock See Target Raise - Barron's

A general view of the Tesla Assembly plant building which also does vehicle delivery and has a service centre, on March 29, 2021 in Tilburg, Netherlands.

Dean Mouhtaropoulos/Getty Images

Tesla stock is dropping in Monday trading after a former bull trimmed his price target. What’s more, he’s raised price targets on the legacy auto maker stocks. The Monday dip and analyst flip is leaving bullish Tesla investors wondering what is up.

Jefferies analyst Philippe Houchois cut his Tesla (ticker: TSLA) stock-price target to $700 from $775. “Volatility, Bitcoin, and tweets brought noise but little fundamental change since we downgraded Tesla,” wrote the analyst in a Sunday report. There is much potential ahead, according to Houchois. That’s the good news. But Tesla is “no longer unique as an EV play with preferred access to capital.” The path forward is a little harder than before.

Houchois was Buy-rated on Tesla stock up until December, when he downgraded it to Hold with a $650 target price; shares were trading at roughly $550 at the time. It rose to $775 before getting cut Monday.

Tesla stock is down 2.1% in midday trading. The S&P 500 and Dow Jones Industrial Average are both down about 0.2%.

In addition to the Tesla price cut, Houchois feels better about the legacy auto makers. He took his price target up on every single one he covers, including Ford Motor (F) and General Motors (GM). His target price for Ford stock goes to $16 from $14. His target for GM stock goes to $62 from $50. Houchois rates GM stock Hold and Ford stock Buy.

He recognizes some near term challenges such as the global automotive-chip shortage, but also sees lower investment and working capital for the industry in the future. “We also keep in mind the EV transition is a marathon, still without obvious winners and, in our view no winner-take-all.” He sees space for legacy auto makers in an all electric future.

The target-price bumps, however, aren’t helping either legacy auto-maker stock though. Both Ford and GM shares are down about 1% in Monday trading.

Ford and GM stocks are still up more than 30% year to date. Tesla stock is down on the year and Monday’s loss for adds to recent investor pain. Shares are down almost 33% from its 52-week high. It’s tough to pin the drop on one issue. Several factors appears to be roiling the EV space right now.

Friday, there was an announcement by NIO (NIO) that first-quarter sales and production would fall short of management’s original guidance, sending its U.S. listed ADRs down 4.8%. NIO cited the global automotive semiconductor shortage. The chip shortage has impacted everyone. GM and Ford have both called the issue a billion-dollar headwind to 2021 profits.

Rising interest rates have been a problem, too. Higher rates impact high-growth companies two main ways. They make it more expensive to finance growth. Second, high-growth companies generate most of their free cash flow far in the future. That future cash, and potential dividends, are worth less, relatively speaking, when investors can earn higher yields on their capital today.

Tesla is a high-growth stock. Analysts expect sales to grow about 55% year over year in 2021.

The next catalyst for Tesla stock might be first-quarter deliveries. There is no fixed date for a delivery update, but typically it comes out in the first few days of a new quarter. Delivery estimates have been coming down, from about 180,000 to 165,000 vehicles, because of the microchip shortage issue impacting the entire sector.

Write Al Root at allen.root@dowjones.com

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