Wedbush Analysts Say 'Heart and Lungs' of Tesla's Sales Growth Intact in China

Tesla reported a second consecutive quarterly delivery decline, with June sales in Germany plummeting 60% year-over-year, despite an overall increase in the German EV market. Conversely, sales in China saw their first monthly rise in eight months. Analysts, including Wedbush, are increasingly looking past the delivery misses to focus on the long-term potential of Tesla's self-driving technology, with Wedbush maintaining a $500 price target, while Goldman Sachs also raised its target to $315. The demand challenges are partly attributed to CEO Elon Musk's political activities, yet shares saw a temporary rise on low expectations.

Analysis

Tesla is facing significant near-term demand challenges, underscored by a second consecutive quarterly delivery decline of 14% and a severe 60% year-over-year drop in German sales for June. This contraction in Germany is particularly concerning as it occurred while the overall German EV market expanded by 8.6%, indicating a material loss of market share. The company's year-to-date sales in Germany are down 58%. While the stock saw a 5% rise post-announcement, this was largely attributed to pre-existing low market expectations. A key counterpoint to the European weakness is the reported rise in Chinese sales for the first time in eight months, a market Wedbush analysts describe as the "heart and lungs" of Tesla's growth potential. Consequently, a narrative divergence is emerging among analysts; some, like Wedbush, are looking past current delivery figures to focus on the long-term valuation of its autonomous software, maintaining a $500 price target. Others, like Goldman Sachs, remain more cautious, lifting their price target to $315 but maintaining a "neutral" rating. The stock's performance, down over 20% year-to-date, is also reportedly hampered by CEO Elon Musk's political activities impacting demand.

Key Decisions for Investors

• Investors should weigh the clear deterioration in near-term fundamentals, particularly the market share loss in Europe, against the long-term, high-risk, high-reward thesis centered on autonomous driving technology.
• Monitor sales data from China closely in the coming months, as a sustained recovery there is critical to offsetting European weakness and validating the growth narrative.
• Consider the widening gap between the current stock price and bullish analyst targets like Wedbush's $500, which is predicated almost entirely on the successful launch and monetization of Full Self-Driving technology, a factor independent of current vehicle delivery volumes.
• Acknowledge that CEO-related news flow presents a persistent, non-fundamental risk factor that appears to be directly impacting consumer demand and stock performance.