Tesla

Investment Thesis

Tesla’s margin pressure from aggressive pricing persists, and energy storage may not fully offset vehicle delivery softness in the near term. Full Self-Driving timeline delays remain a significant overhang. We maintain a Reduce rating with a price target of $220.

What Changed

The core issue is automotive gross margin compression. Tesla has cut vehicle prices multiple times to defend volume, and those cuts have permanently impaired the margin profile of the current vehicle lineup. The margin recovery thesis depends entirely on the Cybertruck and next-generation affordable model — both of which face production ramp uncertainty.

FSD revenues are also not materializing at the pace the bull case requires. The robotaxi business model remains regulatory-dependent and timeline-uncertain, creating a significant mismatch between current valuation and near-term fundamental drivers.

Energy Storage Upside

Megapack deployments are genuinely exceeding expectations. The utility-scale battery storage business has a long runway and meaningfully better margins than vehicles. We model this as a partial offset to automotive margin pressure, not a full solution.

Risks to Reduce

The primary risk to our Reduce rating is a robotaxi regulatory approval in a major market ahead of expectations. If Austin or California approves commercial robotaxi service, the multiple would expand dramatically regardless of near-term automotive fundamentals.

Elon Musk’s influence over key policy conversations also creates an unpredictable variable that can move the stock independent of fundamentals.