Shares of Tesla Inc. faced a downgrade on Tuesday as a longtime bull expressed concern over the increased focus on governance issues surrounding the electric-vehicle giant’s Chief Executive Elon Musk. This downgrade comes on top of an already “tough” electric vehicle (EV) demand environment.
The stock, listed as TSLA, dropped to a nine-month low after closing the previous session. Daiwa Capital Markets analyst Jairam Nathan, who had previously rated Tesla as outperform for the past two years, downgraded the stock to neutral. He also lowered his price target on the stock by 20%, setting it at $195 instead of $245.
Though Nathan acknowledges the possibility of a rebound in EV demand and growth in the long term, he believes that the recent blows to Tesla’s governance could pave a more volatile path for investors.
Tesla’s Long-Term Investment Potential Threatened by Governance Issues
Tesla’s ability to invest in long-term initiatives, break technology and manufacturing barriers, and attract top talent is crucial to its overall strategy, according to industry experts. However, any restrictions on these capabilities could have a negative impact on the company’s long-term prospects.
The stock price of Tesla has experienced a significant decline this year, making it the worst-performing company in the S&P 500 index. This downward trend intensified after the company reported disappointing fourth-quarter results and provided a pessimistic growth outlook due to price cuts and slowing demand.
Despite these challenges, Tesla has demonstrated its commitment to long-term goals. The company has made investments in full self-driving technology, next-generation vehicles, lower-priced electric vehicles, and robotics. These initiatives showcase Tesla’s focus on innovation even during periods of temporary decline in electric vehicle demand.
However, analysts warn that governance issues could impede Tesla’s ability to capitalize on its technological and cost advantages. Any limitations to these essential capabilities may hamper the company’s progress and hinder its competitiveness in the market.
While Tesla’s stock has faced a decline of 16.4% over the past three months, the Global X Autonomous & Electric Vehicles ETF DRIV has seen a gain of 4.2%, and the S&P 500 index SPX has enjoyed a substantial rally of 13.2%.
In conclusion, maintaining the freedom to invest in cutting-edge technologies and attracting top talent will play a crucial role in Tesla’s long-term success. Any hindrance to these abilities due to governance issues could have a detrimental effect on the company’s performance and stock price.
