Tesla shares experienced a 5% decline on Thursday, closing at $209.98, following HSBC Global’s initiation of coverage with a “reduce” rating and a price target of $146. In their analysis, HSBC analysts highlighted the significant impact of Tesla’s CEO Elon Musk on the company’s stock performance. They characterized Musk as a charismatic CEO with a devoted following, attributing his influence to the “innovator narrative” that surrounds Tesla. However, the analysts cautioned that there is a level of “hope” already factored into Tesla’s share price, considering the ambitious future projects the company has announced. They emphasized that these ideas need to materialize to justify the current valuation.
Assessing the Risks and Rewards
HSBC analysts presented both bearish and bullish perspectives for Tesla. On the bearish side, they expressed concerns about potential significant delays or developments indicating a lack of technological or regulatory feasibility for Tesla’s ambitious projects. Such setbacks could pose a substantial risk for the company. Conversely, the analysts noted that Tesla’s core automotive business faces fewer challenges compared to its competitors. As electric vehicles (EVs) continue to gain market share over the coming decades, the analysts believe Tesla, which already holds a cost leadership position, is likely to maintain its advantageous position.
Furthermore, HSBC analysts acknowledged that a quicker-than-expected development in Tesla’s future tech projects could lead to a positive reassessment of the company’s valuation. They also highlighted the potential for higher market share gains driven by price cuts in Tesla’s EV business. These factors, if realized, could result in a re-rating of Tesla’s multiples, further bolstering the company’s standing.
Apart from the downgrade by HSBC, Tesla is contending with an escalating labor strike in Sweden. Tesla’s service division employees, including technicians and mechanics responsible for car repairs and maintenance, have demonstrated their dissatisfaction by participating in strikes and blockades. The employees’ union demands Tesla to sign a collective bargaining agreement, which the company has thus far refused to do. The strikes, initiated by the IF Metall trade union, have started at 12 Tesla service centers this October.
As the conflict persists, members of the Swedish Transport Workers Union, who are dockworkers, have threatened not to unload Teslas at regional ports unless Tesla engages in labor negotiations and reaches an agreement by November 17. Moreover, electrical workers responsible for maintaining Tesla’s charging stations have also pledged to strike starting on the same date if no resolution is reached. There are concerns that the labor action could extend to Norway, heightening the impact on Tesla’s operations.
The situation has attracted attention from US President Joe Biden, who expressed support for the aim of UAW (United Automobile Workers) to achieve collective agreements with Tesla, Toyota, and others. UAW President Shawn Fain mentioned in an online broadcast in October the union’s intention to negotiate with a broader range of automakers, expanding beyond the traditional “Big Three.” Such alliances could potentially increase the bargaining power of the employees and create further challenges for Tesla.
Adding to the pressure on Tesla, the company is scheduled to host a Cybertruck event at the end of this month. Although details regarding the final version of the Cybertruck’s specifications and pricing have not been disclosed, some promotional events have featured advance models of the vehicle. However, these prototypes have faced criticism from auto critics, including both hobbyists and professionals, who have expressed concerns about the build quality and design.
As Tesla faces the combination of a declining stock price and escalating labor strikes, the company’s ability to address these challenges and deliver on its ambitious projects will be closely scrutinized. The influence of Elon Musk, the potential market share gains, and the resolution of labor disputes will significantly impact Tesla’s path forward.