Tesla Stock: Headed to $85?

For the most part, analysts seem disappointed with Tesla's (NASDAQ: TSLA) first-quarter earnings report. Most analysts who've provided updates on their models for Tesla stock following its earnings release lowered their 12-month price targets for shares.

Analysts' concerns are focused on the electric vehicle company's narrowing profit margin as Tesla cuts prices on its vehicles. Despite analysts' lowered priced targets for the stock, many of these targets still sit well ahead of where Tesla shares trade today.

But not all analysts are bullish on the growth stock's potential upside from here. Three analysts had quite bearish projections for the stock following Tesla's quarterly update. One analyst lowered his price target for the stock by 37% to $154, another decreased his from $170 to $150, and another reiterated an $85 price target -- a target representing more than 48% downside from where the stock is trading as of this writing.

Here's why these analysts' price targets for Tesla shares are so low.

The path lower

Truist analyst William Stein lowered his 12-month price target on Tesla shares from $245 to $154, noting that the company's willingness to accept lower margins in the pursuit of volume growth represents a "big change" in how the company runs its business. Stein said this raises the stakes for a successful rollout of the company's autonomous driving technology, which Tesla CEO Elon Musk believes will be a major contributor to the company's business over the long haul.

Musk believes that growing Tesla's installed base of vehicles today will pay off over the long haul through additional services, like driver-assist software, autonomous driving technology, and charging-network fees.

Then there's Jeffrey Osborne at TD Cowen, who lowered his target on the stock from $170 to $150, reflecting decreased estimates for the average selling prices of Tesla vehicles and for the company's profit margin going forward.

Meanwhile, Roth MKM analyst Craig Irwin reiterated an $85 price target for the stock, noting that Tesla's popular Model Y vehicle is now priced a whopping 29% lower than it was going into the year. Interestingly, he believes this price target prices in good execution from the company going forward. But he thinks the stock's shares simply trade at too high of a premium relative to its automotive peers. In other words, Irwin thinks good execution from Tesla's underlying business is already more than priced into the stock at its current level.

Tesla's argument

Despite the more pessimistic view most analysts had for Tesla stock following the update, Tesla management was confident that this is the right thing for both the near and long terms. "Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service," the company said in its first-quarter update.

In addition, news broke on Thursday that Tesla actually raised the prices for its flagship Model S and X vehicles in the U.S. this week. So the company may have lowered its prices enough to continue driving strong sales growth in the current macroeconomic environment.

But with borrowing rates for vehicle loans significantly higher than last year, it's simply too early to know how demand will fare going forward. Further, despite a price increase for Tesla's flagship and lower-volume Model S and X vehicles, they are still priced far below where they were at the beginning of the year.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.