Tesla stock drops after Goldman Sachs downgrade

The shares of Tesla (TSLA) experienced a decline on Monday due to a downgrade from a top Wall Street institution, adding to a growing trend that investors can no longer overlook.

Towards the end of Sunday, an analyst from Goldman named Mark Delaney lowered the status of Tesla shares by changing its rating from Buy to Neutral. This action made it the third time that the stock has been downgraded. Previous to this, other analysts from Barclays and Morgan Stanley also expressed negative opinions about the company.

Surprisingly, Delaney increased his forecasted price for the stock to $248 from its previous figure of $185, but advised investors to reduce their investment in Tesla as the stock has already surged by more than 100% this year.

Tesla's shares experienced a decline on Monday, dropping as much as 4.5% during the afternoon trading session.

Delaney's assessment is primarily based on the value of something being downgraded.

We have changed our opinion regarding the stock, mainly because we believe the market has recognized its potential for growth in the long run. However, we also acknowledge that it may face challenges due to the current pricing environment for new vehicles, which could negatively impact Tesla's automotive non-GAAP gross margin throughout the year. This was stated by Delaney.

According to Delaney and the Goldman team, several factors have contributed to the recent surge, which the company actually didn't see coming as it was larger than what they had anticipated.

Goldman Sachs reports show that sales figures for April and May are steady, and there are fewer discounts being offered than what investors initially anticipated. Additionally, all versions of the Model 3 car have been able to benefit from the full electric vehicle tax credit. Recent developments such as Tesla's charging deals using NACS standard and the company's emphasis on AI-related firms have contributed to the growth of the market. These factors have all played a role in driving this trend forward.

People are observing a Tesla Model 3 electric car at the third China International Consumer Products Expo taking place in Haikou, Hainan province, China on April 12, 2023. Casey Hall captured this moment through a photograph for Reuters.

In simpler terms, Goldman Sachs still believes that Tesla is the top company in the electric vehicle industry and that its stock price reflects this belief.

In general, we hold the opinion that Tesla is in a good position to experience growth in the long run. This is due to their top position in the markets for electric vehicles and clean energy, which is partly because they can give complete solutions such as charging, storage, software/FSD, and services through direct sales. Delaney wrote that this viewpoint is now more evident in the value of the company's stock.

Pras Subramanian works as a journalist for Yahoo Finance. You have the opportunity to keep up with his latest updates on Twitter and Instagram.

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