Tesla Is Still Wall Street's Favorite Car Company

Analysts on Wall Street are giving Tesla Inc. high marks. TSLA 8.23%

Tesla has had a tough year, with production delays in China, backlash over CEO Elon Musk's acquisition of Twitter, and his sale of tens of billions of dollars of Tesla stock. Investors have soured on the stock, which had its worst year in 2022.

Despite Tesla's recent struggles, analysts remain bullish on the company. According to FactSet, 64% of analysts covering Tesla have "buy" or "overweight" ratings for its stock. This is the highest share since the end of 2014.

The analysts have a median target price of $194 for Tesla. However, Tesla shares closed at $133.42 on Friday, which is 31% below that level. This indicates that the stock may be undervalued by the market.

On Wednesday, Tesla will release its fourth-quarter results, giving investors and analysts a closer look at the company's performance over the final three months of the year.

Analysts are optimistic about Tesla's prospects for several reasons. First, the company has strong fundamentals, including a strong balance sheet and a proven track record of innovation. Second, Tesla is well-positioned to benefit from the growing global demand for electric vehicles. Finally, Tesla has a strong brand and a loyal customer base.

Many people believe that Tesla is still the most dominant player in the electric-car industry, despite all the controversy surrounding the company.

Sales of electric cars in the U.S. increased last year, while overall U.S. auto sales declined by 8%, according to market-research firm Motor Intelligence. Although major car companies such as Ford Motor Co., General Motors Co. and Hyundai Motor Co. have introduced more electric models in recent years, they have still lagged behind Tesla. Mr. Musk’s company accounted for 65% of electric cars sold in the U.S. last year, according to Motor Intelligence.

"Even though Tesla has lowered its estimates and reported production cuts, we still believe it is the best positioned EV maker in both the near and long term," Ben Kallo, senior research analyst at Baird, said in a December note on the company.

Some analysts believe that the stock has fallen too much, given its potential for further growth.

Tesla is "way oversold," according to Wedbush Securities analysts Daniel Ives and John Katsingris. In a January note, the analysts wrote that Tesla's stock is "underappreciated."

Tesla's recent price cuts could help increase demand for its vehicles in important markets such as China, according to Mr. Ives. The analyst, who surveyed 500 electric car buyers in China, said he found that nearly 70% of respondents said they were more likely to purchase a Tesla Model Y because of lower prices.

The price cuts have been very successful so far, according to the CEO.

Even those who believe in Tesla's dominance in the electric-car industry caution that its stock isn't in the clear. Tesla faces stiff competition from established automakers, and it remains to be seen whether it can continue to grow at its current pace.

Tesla's stock has been on a roller coaster ride in recent years, soaring during the pandemic only to tumble after the Federal Reserve raised interest rates. However, in the past few weeks investors have become more hopeful that the Fed will cut rates later this year, which has fueled a comeback for many growth stocks, including Tesla. While Tesla's stock is still down from its 2021 high, it is up 8.3% this year, compared to the S&P 500's 3.5% gain.

Skeptical investors have warned that the market is at risk of a reversal if inflation turns out to be more persistent than expected, and the Fed keeps monetary policy tight for longer than anticipated.

Many economists believe that the United States is likely to enter a recession sometime this year. Rising interest rates and an economic downturn are expected to dampen consumer spending, according to Mizuho Securities USA LLC analysts. (The team kept its “buy” rating on the stock anyway, citing its belief that Tesla will continue to be a global leader in the electric-car industry over the long term.)

Tesla faces the risk that controversy over Mr. Musk's handling of Twitter will continue to be a major drag on its stock, according to Oppenheimer & Co. analysts.

The analysts who lowered Tesla's rating to "perform" from "outperform" cited backlash from advertisers and users on Twitter following Elon Musk's takeover of the social media platform.

The analysts warned that the company's technological prowess may be "outweighed by negative publicity leading to additional volatility."

Despite the cautionary notes, Tesla's longtime investors remain enthusiastic.

"We are very bullish on Tesla," said ARK Investment Management founder Cathie Wood on a webinar Thursday. Tesla is the third biggest holding in Ms. Wood's flagship ARK Innovation Fund, which invests in companies that she believes are at the forefront of "disruptive innovation" in their industries.

She believes that Tesla shares could rise fivefold over the next five years.