Goldman Sachs has chosen the most inopportune time to bet against EV maker Tesla (Nasdaq: TSLA). After Tesla stock soared by a double-digit percentage on Monday to its best performance in three years, the Wall Street firm sucked the air out of the rally when it warned that things might not be smooth sailing for Tesla in China. If Elon Musk thought it was going to be easy, he probably wouldn’t have traveled 7,000 miles to meet with Chinese officials, with whom he’s nurtured relationships, to discuss rolling out Tesla’s Full-Self Driving (FSD) software in the country’s fiercely competitive autonomous driving market.

Despite a successful trip in which Musk managed to win over China’s elite with his charm and wit, Goldman sees the glass half empty. Goldman analyst Mark Delaney warned he sees roughly 10% downside potential in TSLA stock, sending shares approximately 5% lower to erase one-third of Monday’s advance. Goldman sounded the alarm because of hurdles to perfecting self-driving technology in China.

Goldman’s Delaney set a $175 price target on Tesla shares with a neutral rating, a bearish call that predicts 10% downside from Monday’s close. Basically, the analyst warns that while Tesla’s Full Self-Driving (FSD) software has global potential, the EV maker is going to need to make some tweaks in order to comply with China’s local regulations.

But Chinese Premier Li Qiang, with whom Musk met on Sunday, never would have granted Musk temporary approval if they hadn’t addressed these expectations and the Tesla boss didn’t satisfy early security concerns. Li even said that Tesla represents a “successful model” for U.S. and China collaboration, suggesting Musk could not only be the key to self-driving cars but also less adversarial relations between the two countries. 

Basically, Goldman warned investors that Tesla’s pathway in China will be riddled with hurdles. But establishing a data center in Shanghai probably was no piece of cake, either, but Musk did it. For a man who is trying to bring autonomous driving to the mainstream, Musk doesn’t give the impression he’s looking for shortcuts. Besides, no other CEO has demonstrated a similar tenacity to compete in a market where no foreign company has gone before. 

Tesla Rides the Wave 

Tesla stock’s declines are occurring on a day when the Fed is meeting to discuss interest rates, which already has traders on edge. Additionally, stock declines are happening on low conviction, with trading volume in the stock today less than half of Monday’s levels, when over 241 million shares changed hands. Therefore, Tesla bulls are much more convincing than the bears. 

Now that Tesla is implementing price cuts on some of its most popular models, the company has a good shot at reviving sales to offset a recent lull in EV demand. This is key for a company whose capex is trending upwards of $10 billion in 2024. Tesla is also generating billions of dollars from its charging stations thanks to partnerships with rival automakers including Ford (NYSE: F). If there was any doubt his sights are set on the future, Musk erased them when he said: “If somebody doesn’t believe Tesla is going to solve autonomy, I think they should not be an investor in the company.” 

Year-to-date, Tesla stock is down approximately 25%. But as Tesla makes its cars more affordable, the company has great expectations for deliveries in the second half of the year, which is a good reason to be bullish. Musk told analysts on the Q1 earnings call Tesla deliveries will be higher in 2024 vs. 2023.

Incidentally, short interest in TSLA shares as a percentage of free-float hovers at just below 4% and has been rising of late to its highest point in over a year. Musk believes short-selling is silly and is designed to “work against the public” since barely anyone knows how to use it effectively. Tesla was under what he described as “intense attack” from short-sellers a couple of times in history, including 2013 and the 2017-2019 stretch. And yet in the end Musk always manages to have the last word.

 

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