Despite rally in Tesla stock, US election could risk ~40% of profits: JPMorgan

Investing.com -- Prior to the recent decline, Tesla’s stock had seen a sharp rally, but analysts at JPMorgan warned in a note Friday that the 2024 U.S. presidential election could threaten as much as 40% of Tesla’s profits due to potential policy shifts under the incoming administration. 

JPMorgan maintained an Underweight rating on the electric vehicle giant’s shares with a $135 price target for December 2025.

Tesla’s fourth-quarter deliveries for 2024 aligned with JPMorgan’s estimates but fell short of market expectations, raising concerns about the company’s 2024 earnings. 

The current expectation for 2024 EPS has declined -67% from $7.30 in 2022 to just $2.43, JPMorgan noted, highlighting risks to future earnings.

One major concern is said to be the potential removal of key government subsidies that significantly impact Tesla’s profitability. 

According to JPMorgan, these include the expiration of the Consumer Tax Credit (CTC) and a $2 billion headwind from  California Air Resources Board (CARB) ZEV credit sales. 

The bank says that combined, these could pose a $3.2 billion headwind, equivalent to ~40% of Tesla’s projected $8.3 billion in 2024 EBIT.

While the market has largely ignored these risks, focusing instead on Tesla’s ambitions in the autonomous robotaxi space, JPMorgan notes that slowing deliveries may “refocus investors on the deterioration in deliveries, revenue, gross profit, EBIT, EPS, and FCF estimates.”

Adding to these challenges is said to be a broader downward trend in Tesla’s earnings projections. 

The analysts urge caution, emphasizing that Tesla (NASDAQ:TSLA ) is particularly vulnerable to the shifting regulatory environment. They conclude that "Tesla appears to have the most to lose from the shifting regulatory backdrop.”

 

Source: Investing.com