Barclays slashes its Tesla stock price target by 20%, gives 3 reasons why next week's Q1 earnings call will disappoint

"Tesla's deeply challenged near-term fundamentals are taking the backseat to a much larger issue, as Tesla is facing an investment thesis pivot."

• Barclays slashed its Tesla stock price target by 20% to $185 on Wednesday.
• Barclays said Tesla's upcoming earnings call would likely be a negative catalyst for the stock.
• "We expect little commentary from Tesla to dissuade investors that near-term fundamentals remain weak," Barclays said. 

Tesla is about to host what may be "one of the most widely anticipated calls ever" next week, and Barclays doesn't expect anything good to come from it.

In a note on Wednesday, Barclays slashed its Tesla stock price target by 20% to $180 from $225, arguing that the company's upcoming first-quarter earnings report on April 23 will be a negative catalyst for the stock.

Barclays' forecast comes just two weeks after Tesla badly missed its first-quarter vehicle deliveries, a week after it was reported that the company was ditching its low-cost Model 2, and just days after the company laid off 10% of its global workforce and lost two key executives.

Barclays analyst Dan Levy said he expects Tesla to miss Wall Street estimates when it reports results next week, with gross margins likely to disappoint investors, while CEO Elon Musk's recent decision to go all-in on a robotaxi fleet unlikely to be met with enthusiasm. 

"Plans for Model 2 will likely get most attention but don't expect satisfying answer," Levy said. 

While the focus on Tesla should be its ability to grow vehicle deliveries in an increasingly competitive market for EVs, as well as increase its profit margins, instead that likely won't drive the earnings call.

"Tesla's deeply challenged near-term fundamentals are taking the backseat to a much larger issue, as Tesla is facing an investment thesis pivot. Specifically, the central focus of the call will be to understand Tesla's forward strategy as Tesla is seemingly pivoting away from its plans to produce a mass market vehicle (Model 2), and is instead focusing its efforts on autonomous driving," Levy explained.

If it turns out that Tesla is indeed pivoting away from a mass market vehicle and towards a fully self driving robotaxi, that would be a "clear net negative for the Tesla investment thesis," according to Levy.

"It casts significant uncertainty on the path ahead for Tesla, making success of the stock dependent on bets with seemingly binary outcomes," Levy said. "Indeed, we are hard pressed to think of any other precedent of a company of Tesla's size basing its path of success on such binary bets."

When it comes to Tesla's earnings call next week, Levy highlighted three negative catalysts he expects to hear.

1. "We expect a 1Q miss with gross margins below consensus. Moreover, we expect little commentary from Tesla to dissuade investors that near-term fundamentals remain weak," Levy said.

2. "Free cash flow may be negative, marking the first quarter since 1Q20 of negative FCF. There could be some shock factor to this result," Levy said.

3. "While investors will enter the call with significant questions on Tesla's strategy, we believe many of these questions may be unanswered. And with significant uncertainty remaining on the investment thesis, it could lead investors to capitulate," Levy said.

Levy reiterated his "Equal Weight" rating on Tesla, the equivalent of a "Hold" in Wall Street terms.