What You Missed This Week in EVs and Clean Energy

Daiwa downgrades Tesla to Neutral on corporate governance concerns

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From the hotly-debated high-flier Tesla (TSLA), Wall Street’s newest darling Rivian (RIVN), traditional-stalwarts turned EV-upstarts GM (GM) and Ford (F) to the numerous SPAC-deal makers that have come public in this red-hot space, The Fly has you covered with “Charged,” a weekly recap of the top stories and expert calls in the sector.

MOVING TO TESLA SIDELINES: 

Daiwa downgraded Tesla. The firm says the ramifications of increasing focus on governance concerns could limit Tesla’s propensity to invest for the very long term and innovate. The firm views corporate governance concerns “aggravating already tough” financial conditions in 2024. While Daiwa sees a path for long-term investors to be rewarded through a growth rebound, “the recent knocks on Tesla’s corporate governance could make the path more volatile.” The firm further says any restrictions on Tesla’s propensity to invest for the very long-term, pursuit of breaking technology and manufacturing barriers and attracting top talent could negatively impact its long-term thesis.

PRICE CUTS: 

Tesla has temporarily cut prices of some of its Model Y cars in the U.S. until Feb. 29, less than a month after the carmaker cut Model Y prices in Germany, according to Reuters. Tesla reduced prices for its Model Y rear-wheel drive and Model Y Long Range by $1,000 to $42,990 and $47,990 respectively, representing a discount of 2.3% and 2% from previous prices. Prices of the Model Y Performance variant and other models remained unchanged. New Model Y rear-wheel drive and Long Range model prices will be reduced for deliveries now through Feb. 29, Tesla said, adding that that price would increase by $1,000 or more on March 1.

JOB CUTS: 

Tesla staff are bracing for possible job cuts after managers were asked which jobs are critical, Bloomberg‘s Dana Hull and Edward Ludlow report. According to people familiar with the matter, managers in the U.S. had to make the assessment of their deputies’ roles in recent days, and Tesla sent out the single-line query for each job after canceling some employees’ biannual performance reviews.

Click here to check out Tesla’s recent Media Buzz Sentiment as measured by TipRanks.

DEMAND PRESSURE: 

Barclays downgraded Rivian Automotive. The company has a great product and technology, but this is not enough to avoid increased signs of demand pressure amid the broader electric vehicle slowdown, the firm tells investors in a research note. Barclays believes demand softness implies risk from pricing, slower volume growth, and a longer path to breakeven for Rivian. The company also has an ongoing need for capital raises, adds the firm.

Deutsche Bank also downgraded Rivian Automotive. The firm said it sees downside to the company’s 2024 volume and margin outlook. While the planned R2 unveil could help investor sentiment, there remains many other questions post the announcement including timing of capital needs, production ramp, and profitability, Deutsche tells investors in a research note. The firm expects 2024 volume guidance of just 65,000 units from Rivian amid prolonged factory shutdowns and a slow ramp up. This could result in continued deep losses through Q3, which are unlikely to be offset by potential positive gross margins in Q4, contends Deutsche Bank.

LI AUTO: 

Deutsche Bank upgraded Li Auto (LI). Following the stock’s 32% decline since late November, the firm sees a “compelling set-up in the coming quarters driven by a robust product pipeline,” further supported by an attractive valuation for a “top tier” electric vehicle player. The management team has proven to be best-in-class, says the firm. While Q1 will be soft, Li’s volume and margin should bounce back starting in Q2, boosted by new/refreshed models, says Deutsche Bank.

LIMITED UPSIDE: 

UBS downgraded Plug Power (PLUG). The analyst says potential upside in the shares looks limited in the near term. The company’s “key issue” of negative gross margin is still not resolved, the firm tells investors in a research note. UBS thinks Plug is struggling with negative gross margin and it does not see gross margin turning positive in 2024. The only way to convince long-term investors that Plug has fixed its cash-burn problem is to provide a concrete path to positive gross margin, contends the firm. It also sees the Treasury’s proposed requirements as negative for green hydrogen production, saying they would result in the cost of buying green electricity for hydrogen production increasing materially.

Seaport Research also downgraded Plug Power to Neutral from Buy with no price target. The firm sees a balanced risk and reward at the current valuation, while Plug seeks to raise required capital, stanch its cash burn, and improve margins. Seaport further expects to stay on the sidelines until clean H2 adoption reaccelerates and/or the company seems “on the cusp of profitability.”

Meanwhile, Redburn Atlantic initiated coverage of Plug Power with a Neutral rating. The recent “going concern” notice from Plug Power offers a warning over the potential for further capital requirements in the hydrogen-focused sector and for the company, the firm tells investors. Redburn sees Plug requiring greater than $2B of funding over the next five years until it becomes cash generative and while the $1B At The Market offering and planned $1.6B Department of Energy loan cover the funding gap, the ATM will cause significant dilution if fully utilized, the firm tells investors.

REINSTATED WITH A NEUTRAL: 

JPMorgan downgraded Brookfield Renewable Partners (BEP), after reinstating coverage following a period of restriction. The firm believes the company’s diversified portfolio and proven execution justify a premium valuation compared to peers, which is properly reflected in the current stock price. Within its downstream coverage, the firm prefers Altus Power (AMPS), Hannon Armstrong (HASI), Sunnova (NOVA), and Sunrun (RUN).

‘AGGRESSIVE, UNCERTAIN’ GUIDANCE: 

Redburn Atlantic initiated coverage of Bloom Energy (BE) with a Neutral rating. Bloom’s 2026 and 2031 revenue guidance ranges are “too aggressive and uncertain,” the firm tells investors. While both Redburn and consensus are “already well below the guides,” the firm questions how sustainable it is to have these guidance points in the market, adding that Bloom appears to have benefited from investor flows following Plug Power’s sharp fall, which “may not be sustained.”

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Originally Posted February 12, 2024 – What You Missed This Week in EVs and Clean Energy