Analysts focus on Tesla’s third-quarter deliveries and cut estimates. This unsettles investors. However, both groups may want to look a little further into the future as the outlook for 2024 may be worsening.
On Wednesday, Deutsche Bank analyst Emmanuel Rosner maintained his Buy rating on Tesla stock (ticker: TSLA), but lowered his price target to $285 from $300. Many of his colleagues were worried about a delivery failure in the third quarter. A bigger concern, however, was the reason for lowering its target price.
“Tesla’s third-quarter 2023 deliveries and production could miss Street expectations, but more importantly, we see significant downside risk to the 2024 consensus due to limited volume growth next year,” Rosner wrote.
Its estimate for third-quarter deliveries is now 440,000 units, up from 455,000 units. According to FactSet, that’s more drastic than the new consensus estimate of 462,000 units, up from 473,00 units a few weeks ago.
Tesla’s delivery estimates are cut toward the end of most quarters, but these third-quarter cuts are larger than in the past. Rosner and other analysts cite the planned plant shutdown to change tools for an improved Model 3 as the main reason for all of the recent cuts.
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A weak quarter is certainly important, but the bigger issue is demand for 2024.
“Tesla recently announced to us [Munich auto show] At investor meetings it was announced that there are no longer any plans to increase production to 10,000 per week at the Austin and Berlin factories, so next year there will only be additional volume from these two factories, as well as a minimal contribution from the Cybertruck with a slower one and more complex vehicle startup,” Rosner wrote. “Our base case now assumes that Tesla expects approximately 2.1 million deliveries next year, compared to the current consensus of 2.3 million units.”
Rosner’s cut is about 9% of previous estimates for 2024. Without his reduction, Wall Street’s consensus estimate for 2024 has been little changed, falling about 40,000 units, or 2%, in recent weeks.
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Falling estimates, weak production growth, and weak Cybertruck deliveries in 2024 aren’t what investors want to hear. Tesla’s goal is to increase volumes by an average of 50% per year in the coming years. Next year, growth would be less than 20% at 2.1 million units. Deliveries are expected to be approximately 1.8 million units in 2023, up approximately 40% from 2022.
“On the positive side, pricing pressure may be less next year as the company is not looking to increase volumes as much,” Rosner added.
Tesla aggressively cut prices at the start of 2023, in part to spur demand growth, according to CEO Elon Musk. Investors want prices to stabilize. They also want to see higher demand for Tesla electric vehicles.
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Rosner still recommends buying. He sees 2024 as a risk for the stock, but “longer term, the next-generation vehicle will transform the industry,” Rosener told Barron’s, adding that it is critical that the next-generation vehicle be available at a lower cost the market will come on the market in 2025.
Investors typically view the next-generation vehicle as a smaller Model 3 or Y and refer to it as the Model 2, although there is no official name. The Model 2 is intended to give Tesla a larger share of the car market and be a vehicle platform that can sell millions of cars per year.
Overall, about 41% of analysts cover the stock as a “Buy.” The average Buy rating for stocks in the S&P 500 is about 55%. A year ago, the average buy rating was around 64%. Price cuts and rising interest rates have dampened some of analysts’ enthusiasm for Telsa shares.
The average analyst price target is about $258 for Tesla shares. A year ago it was about $318.
Tesla shares closed down 0.8% at $242 per share, while the S&P 500 was flat and the Nasdaq Composite rose 0.2%.
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At the start of Wednesday trading, Tesla shares were up about 98% year to date, but have fallen about 13% over the past 12 months. The S&P 500 and Nasdaq Composite are up about 17% and 21%, respectively, over the past 12 months.
Write to Al Root at [email protected]