Why Wall Street is turning cautious after a monster rally at the start of 2023”

Tesla (TSLA) stock has surged for the first half of the year, leading to a growing number of analysts calling the electric-vehicle maker's return to all-time highs top analysts.

Late Sunday, Goldman Sachs analyst Mark Delaney became the third Wall Street analyst to downgrade Tesla in less than a week.

Delaney downgraded Tesla to neutral from buy while increasing its price target to $248 from $185. Delaney's move reflects a common theme across the downgrades: Tesla stock has performed so well, it's hard to imagine it'll do any better by year-end.

“We believe the stock, after a significant gain year-to-date, now better reflects our positive long-term view of the company's growth potential and competitive position,” Goldman Sachs analyst Mark Delaney wrote in a note Monday.

Morgan Stanley's Adam Jonas put it succinctly: “I didn't see this 111% YTD rally coming.” It's an understandable stance on Jonas' part after a 2022 that saw Tesla shares fall nearly 70%, when CEO Elon Musk bought a social media company and the electric vehicle maker began losing market share to rivals.

Even Wedbush Securities CEO Dan Ives, a longtime Tesla bull, was skeptical about 2023. He lowered his price target from $250 to $175 on December 22, 2022, writing in a note: “As Tesla cuts prices and inventories rise worldwide in the face of a likely global recession, Musk is seen as one of them. “Sleeping at the wheel” from a leadership perspective for Tesla.”

In the first six months of the year, the mood shifted massively in favor of Tesla. The company implemented several price cuts that the Street deemed necessary to stimulate demand, and fourth-quarter results came in better than expected.

Then came a new CEO at Twitter, several groundbreaking licensing partnerships, and a stock boom in artificial intelligence. It all combined to see shares soar more than 100% year over year.

Bulls like Ives are beating the drum again, most recently writing that the electric carmaker has built an “EV castle,” citing growing revenue streams like the Supercharger network, which now has partnerships with key competitors like Ford (F), General Motors (GM) and Rivian (RIVN).

AUSTIN, TEXAS – MAY 31: A Tesla Model Y is seen at a Tesla car lot on May 31, 2023 in Austin, Texas. Tesla's Model Y has become the world's best-selling car in the first quarter of 2023. (Photo by Brandon Bell/Getty Images)

However, some analysts question how durable some of the current growth drivers will be. Morgan Stanley's Jonas stresses that the AI-driven stock move could be a cause for concern.

“While we understand why Tesla is being seriously mentioned in an AI conversation, we believe re-evaluating this topic is in the realm of irrefutable cop case,” wrote Jonas. “From our point of view, autonomous driving and generative AI remain two very different technological disciplines. While the market might want to daydream about the AI ​​issue, we would prepare to wake up to the sound of a car horn blaring.”

Barclays analyst Dan Levy agrees with Jonas that the AI ​​narrative is likely priced too far into Tesla stock. Levy downgraded Tesla from overweight to equal weight on June 21.

“While we're not surprised the stock has participated in the rally, we believe it's wise to take a step on the sidelines,” Levy wrote.

He points to key fundamental factors weighing on the stock prior to the AI ​​rally, such as margin concerns amid price cuts.

Investors will be on the lookout for more clues as to how Tesla demand will react to these price cuts in the upcoming holiday week. Normally, Tesla reports its quarterly deliveries for the second quarter on July 2nd.

After delivering 422,875 vehicles in the first quarter, Wall Street analysts expect Tesla to report 448,599 deliveries for the second quarter, according to Bloomberg consensus data.

Josh is a reporter for Yahoo Finance.

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