After delivering remarkable returns to shareholders since its IPO, Tesla stock (NASDAQ:TSLA) has recently struggled to keep pace with broader market trends. Despite being down 45.3% from its all-time highs, Tesla has still provided an astonishing 14,000% return since its public debut in 2010. Currently valued at $723.2 billion, Tesla remains the largest automobile company globally, even as it navigates through a challenging landscape. The big question now is whether Tesla stock can make a strong comeback over the next year.

Tesla Wrestles With Slower Growth, Falling Margins

As the largest electric vehicle (EV) manufacturer in North America, Tesla is contending with various macroeconomic headwinds, including inflation, rising interest rates, and decreasing consumer demand. In the second quarter of 2024, Tesla reported revenue of $25.5 billion, with adjusted earnings per share (EPS) of $0.52. This performance fell short of analyst expectations of $24.77 billion in sales and $0.62 EPS. While overall sales increased by 2%, the company experienced a 7% year-over-year decline in automotive revenue. Notably, revenue from regulatory credits surged to $890 million over the past year.

In response to waning demand, Tesla has cut EV prices several times in the past two years. In Q2, the company continued its strategy of offering discounts and interest-free financing, leading to a decline in adjusted earnings margin from 18.7% to 14.4% year over year. Additionally, to manage costs, Tesla announced plans to reduce its workforce by 10% as vehicle deliveries declined for two consecutive quarters. This combination of falling sales and eroding profit margins has resulted in a free cash flow of $1.71 billion over the last 12 months, a significant drop from the record $7.56 billion in 2022.

Tesla Gains Traction in China

China, being the world’s largest EV market, is crucial for Tesla’s growth. Despite rising competition from local players like Nio (NYSE:NIO), BYD (OTCMKTS:BYDDY), Li Auto (NASDAQ:LI), and XPeng (NYSE:XPEV), Tesla has managed to maintain a strong presence. Recent reports indicate a 12% increase in Tesla’s insurance registrations in China for the week ending September 8, climbing from 14,400 to 16,200. The company is on track for double-digit vehicle delivery growth in China for Q3 2024, although total sales in the first eight months of 2024 saw a 6% decline year over year, totaling 587,437 vehicles.

Europe also presents growth opportunities, especially following the European Union’s recent tariff increases on EVs made in China. Analysts project Tesla’s Q3 deliveries will rise by 5% year over year to 458,000 units, potentially marking the company’s third-best quarter in terms of vehicle deliveries.

Deutsche Bank is Bullish on Tesla

In a recent report, Deutsche Bank (NYSE:DB) has rated Tesla stock a “buy” with a target price of $295, one of the highest forecasts on Wall Street. Analyst Edison Yu emphasizes that Tesla should not just be seen as an automaker but as a technology platform set to transform multiple industries. He views Tesla as a “secular leader” poised to impact sectors such as automotive, energy, mobility, and robotics.

Yu is particularly optimistic about Tesla’s battery storage business, projecting it could generate $13 billion in sales by 2025. Another significant revenue driver could be the anticipated launch of Tesla’s robotaxi, set to be unveiled on October 10. CEO Elon Musk has touted the robotaxi as a vehicle equipped with full self-driving capabilities, which could disrupt the multi-billion-dollar ride-hailing industry. In drawing parallels, Yu likens Tesla’s potential in robotics to that of Nvidia (NASDAQ:NVDA).

What’s the Analyst Forecast for TSLA Stock?

This optimistic outlook contrasts with the broader market sentiment, which leans towards a cautious “hold” on Tesla stock. Of the 36 analysts covering Tesla, 10 recommend a “strong buy,” one suggests a “moderate buy,” 18 rate it as a “hold,” and seven classify it as a “strong sell.” The average 12-month price target stands at $201.06, representing a potential downside of approximately 13% from current levels. In stark contrast, Deutsche Bank’s new price target of $295 implies a possible rally of about 27%.

In summary, while Tesla stock faces several challenges, the potential for growth, particularly in new markets and technologies, positions it well for a possible rebound. Investors may want to consider this bullish outlook as they navigate their investment strategies for the coming months.

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