Tesla
stock slumped on Wednesday, and it might have been the market that caused the weakness. Or it might have been Munich.
Tuesday, Deutsche Bank analyst Emmanuel Rosner met with Tesla management at a conference connected to IAA Mobility, the Munich auto show. There was good news and bad news.
On the negative side, Rosner believes there might be some disappointment in terms of deliveries and profit margins in the third quarter. Tesla took some planned production downtime in the quarter, which might limit deliveries. And some of the declines in raw-materials costs that have saved Tesla money this year came through in the second quarter, leaving little room for further reductions.
Wall Street currently expects third-quarter deliveries will come in at about 470,000 cars, with operating profit margins of about 10%. Tesla sold about 466,000 vehicles in the second quarter and reported operating profit margins of about 9.6%, compared with almost 15% in the second quarter of 2022.
Price cuts for Tesla’s vehicles, which accelerated at the start of 2023, have hurt profit margins and raised concern among investors. Tesla stock dropped almost 10% after second-quarter results were reported in July as investors weighed comments from CEO Elon Musk that seemed to indicate he will prioritize growth in sales volume over profitability.
Musk is making a long-term bet that having more Tesla vehicles on the road is a better strategy than selling fewer vehicles for more money. It makes sense because he believes Tesla’s autonomous-driving software will generate continuing, subscription-based sales across the entire fleet of Tesla vehicles. More vehicles equals more software sales.
Autonomous driving isn’t the only thing Tesla is planning for growth. Rosner said in his report that Tesla is optimistic about Cybertruck, which is due to be delivered in the fourth quarter, and the updated Model 3 sedan, believing new features will boost sales.
“Above all, Tesla confirmed that its highest priority and largest growth opportunity is its next-gen vehicle platform which could account for 5 million-plus [vehicles] of annual production globally,” wrote Rosner, referring to a potential smaller, less expensive Tesla.
Tesla is expected to deliver about 1.8 million cars in 2023 and about 2.3 million in 2024, mostly from the vehicle platform that underpins both Model 3 and Model Y cars. An additional 5 million units of demand would be a big step.
Rosners rates Tesla shares at Buy and has a target of $300 for the price, while the average among analysts is about $254. About 39% of analysts covering the company rate shares Buy, far below the average of about 55% for stocks in the
S&P 500.
Tesla stock dropped 1.8% to $251.37 on Wednesday, while the S&P 500 and
Nasdaq Composite
fell 0.7% and 0.1.1%, respectively.
Write to Al Root at [email protected]
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