What You Missed This Week in EVs and Clean Energy

Tesla recalling over 2M vehicles to fix a defective system

Institutional investors and professional traders rely on The Fly to keep up-to-the-second on breaking news in the electric vehicle and clean energy space, as well as which stocks in these sectors that the best analysts on Wall Street are saying to buy and sell.

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.

TESLA RECALL: 

Tesla is recalling over 2M vehicles to fix a defective system that is meant to ensure drivers are paying attention to the road when using Autopilot, Tom Krisher of AP News reports. The company intends to send out a software update to fix the problems, according to documents posted by U.S. safety regulators. This comes after a two-year investigation by the National Highway Traffic Safety Administration into crashes that occurred while Autopilot was in use, which found Autopilot’s method of ensuring driver attention is inadequate and “can lead to foreseeable misuse of the system,” the agency said, according to AP News.

Tesla’s Autopilot system that prompted a 2M recall of its vehicles has been a subject of a series of lawsuits claiming the company has promised more than it delivered and put people in danger, Rebecca Elliot and Ryan Felton of The Wall Street Journal report. Tesla faces at least 12 lawsuits in the U.S. related to its driver-assistance systems and has also been sued by consumers and investors alike who claim the marketing of its Autopilot and Full Self-Driving Capability is misleading. The company agreed to the recall after the top U.S. auto-safety regulator found the controls around the technology were inadequate in most cases, which could potentially lead drivers to misuse the system. Both the U.S. Justice Department and Securities and Exchange Commission have opened investigations into whether Tesla misled consumers by how it marketed its Autopilot.

TARGET CHANGES: 

Deutsche Bank lowered the firm’s price target on Tesla. The firm expects Tesla’s Q4 deliveries to meet Street expectations but still sees “material downside risk” to 2024 consensus estimates due to limited volume growth next year. For Q4, Deutsche’s deliveries estimate remains 476,000 units, allowing Tesla to reach 1.8M units for the year as it guided. The larger risk is downside to expectations for 2024 on both growth and earnings, as Tesla “candidly admitted” the company is now in an intermediate lower-growth period, the firm tells investors in a research note. Deutsche says that after the very strong growth of Model 3 and Y vehicles over the past five, the company is getting closer to reaching full volume potential before the launch of its next-generation platform.

Meanwhile, Guggenheim raised the firm’s price target on Tesla. The firm is updating numbers to reflect the latest delivery trends and pricing, noting that for Q4 it sees deliveries tracking in line with 1.8M unit guidance, led by strong China trends, a strong November in Europe and continued softness in the U.S. A large focus of the firm’s conversations with investors have centered around Tesla’s path to grow, not just in 2024, but 2025, which “is a challenging narrative for a stock trading at 77X/59X our 2024/2025 EPS estimates,” Guggenheim tells investors.

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

PILOT PROGRAM FLEET: 

Rivian Automotive and AT&T (T) have announced that they have signed an agreement for AT&T to purchase Rivian electric vehicles, or EVs, for AT&T’s fleet through a pilot program aimed at cutting transport emissions. AT&T expects to begin adding the Rivian Commercial Van and R1 vehicles to its fleet in early 2024 to begin evaluating the various ways these vehicles help improve safety, reduce costs and cut its carbon footprint. Piloting EVs from Rivian will allow AT&T to explore new paths in its electrification journey, which is expected to contribute toward the company’s commitment of carbon neutrality by 2035. In addition to Rivian collaborating with AT&T to provide fleet vehicles for a pilot, AT&T is the exclusive provider of connectivity to all Rivian vehicles.

MOVING TO THE SIDELINES: 

Exane BNP Paribas downgraded Ford. The current battery electric vehicle weakness “is merely the tip of a melting iceberg as affordability constraints bite,” the firm tells investors in a research note. Exane BNP Paribas says other rich segments “will add to the meltwater” in 2024. Exane supports more cyclical mass global auto names in 2024.

ENPHASE: 

Jefferies initiated coverage of Enphase Energy (ENPH). The firm is seeing data points indicating residential solar demand is near trough levels, and with expectations of interest rates stabilizing, it expects the stock to react positively. Enphase’s near-term may remain choppy, but there are tangible signs of a recovery by the second half of 2024, Jefferies tells investors in a research note.

TOP PICK: 

Jefferies initiated coverage of First Solar (FSLR). In times of economic uncertainty, alternative energy companies with exposure to utility-scale, strong backlog and balance sheets have better risk/rewards, the firm tells investors in a research note, calling First Solar its top pick. The company meets Jefferies’ key criteria including a strong backlog, supportive pricing in a declining pricing environment, a strong balance sheet, and ramping gross margins.

SUNRUN: 

Jefferies initiated coverage of Sunrun (RUN). The firm’s “optimism” is driven by Sunrun’s greater than 60% market share in a “solar as a subscription” model, predictable cash flow and a “conservative approach” to valuation that it says still provides upside.

RISKS AROUND DELAYS: 

Jefferies also initiated coverage of Array Technologies (ARRY). Array provides solar ground mounting tracking systems and while the firm is constructive on utility-scale solar, the focus remains on Array’s ability to convert its backlog to revenue and continue adding to it. Array has experienced project delays, which is an issue “not particularly prevalent for peers” Nextracker (NXT) and Nacco (NC), says Jefferies, which notes that risks around added delays keep it on the sidelines.

MORE BALANCED RISK-REWARD: 

Goldman Sachs upgraded Canadian Solar (CSIQ). The firm’s previous Sell thesis was predicated upon margin risks, but with the stock having pulled back it now sees a more balanced risk-reward profile.

SOLAREDGE, SUNPOWER: 

Goldman Sachs downgraded SolarEdge (SEDG). The firm’s Sell thesis is based upon its view that the correction in the European solar market is “just beginning,” compared to the U.S. market which “seems to be much closer to the bottom.” The firm notes 1% upside to its current 12-month price target versus about 55% average upside across its solar average.

Goldman Sachs also downgraded SunPower (SPWR). Average selling price declines, driven by increased competition from Maxeon Solar (MAXN), will pressure margins and set up SunPower for “a challenging 2024,” the firm tells investors.

GROWTH INFLECTION: 

Goldman Sachs also upgraded Sunnova Energy (NOVA). The firm sees a growth inflection in 2024 in the residential solar market, with the better mix to leverage nearer-term upside, as well as a potentially stabilizing lending environment.

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Originally Posted December 18, 2023 – What You Missed This Week in EVs and Clean Energy