Tesla Inc. (TSLA): JP Morgan Maintains “Sell” Rating, $135 Target

1. Q4 Sales and Production Underperformance: Tesla’s Q4 sales and production figures aligned with JPMorgan’s internal estimates but fell short of broader market consensus. This discrepancy highlights growing challenges in meeting expectations and implies further downside risk to 2024 earnings per share (EPS). Over the past year, Tesla’s EPS forecasts for 2024 have already decreased significantly by 36%, from $3.85 to $2.43.
2. Earnings Decline and Valuation Concerns:
   JPMorgan emphasizes the sharp decline in Tesla’s 2024 EPS estimates, which now stand 67% below the $7.30 EPS level recorded in 2022. At that time, Tesla’s stock price was considerably lower, suggesting that its current valuation is overextended. The firm believes this disconnect between earnings potential and stock price threatens Tesla’s recent rally, particularly post-election.
3. Regulatory Risks and Financial Impact:
   Tesla is heavily exposed to shifting regulatory policies, which JPMorgan identifies as a significant risk. The firm estimates that Tesla could face a $3.2 billion financial impact in 2024—approximately 40% of its $8.3 billion EBIT (Earnings Before Interest and Taxes) consensus estimate—due to two key factors:
   • Clean Vehicle Credit Expiration: A projected $1.2 billion revenue loss stemming from the expiration of federal clean vehicle credits.
   • California Zero-Emission Vehicle (ZEV) Credits: A further $2 billion hit as Tesla’s reliance on ZEV credit sales diminishes due to changing policies from the California Air Resources Board.
4. Broader Implications:
   JPMorgan underscores that these challenges—declining earnings potential, missed expectations, and regulatory headwinds—position Tesla as one of the most vulnerable automakers in the current environment. Despite its past dominance in the EV market, these factors could erode its competitive edge and profitability.

Impact & Outlook

JPMorgan’s analysis and forecast of Tesla’s stock demonstrates it is  overvalued based on the company’s declining earnings outlook, increasing regulatory pressures, and potential financial setbacks, are used to justify the analyst’s “Sell” rating, $135 price target and overall bearish sentiment on the stock.  As a result JP Morgan is predicting the stock will decrease from the current trading price of $417 to $135, within a 12 month time frame, which is approximately a 67.63% drop in Tesla’s valuation.