Analysts are focused on Tesla’s third-quarter deliveries, and lowering estimates. That is unnerving investors. Both groups, however, might want to look a little farther down the road because the outlook for 2024 may be deteriorating.
Wednesday, Deutsche Bank analyst Emmanuel Rosner kept his Buy rating on
Tesla
stock (ticker: TSLA) but cut his price target to $285 from $300. Many of his peers have been worried about a third-quarter delivery miss. A bigger worry drove his target-price reduction, however.
“Tesla’s 3Q 2023 deliveries and production could miss Street expectations, but more important, we see meaningful downside risk to 2024 consensus due to limited volume growth next year,” wrote Rosner.
His estimate for third-quarter deliveries is now 440,000 units, down from 455,000 units. That is more drastic than the new consensus estimate for 462,000 units, down from 473,00 units a few weeks ago, according to FactSet.
Tesla delivery estimates get trimmed coming to the end of most quarters, but these third-quarter cuts are larger than in the past. Planned plant downtime to change tooling for an upgraded Model 3 is the main reason Rosner and other analysts cite for all of the recent cuts.
A weak quarter certainly matters, but the bigger issue is the 2024 demand.
“Tesla indicated recently at our [Munich auto show] investor meetings that it is no longer planning to expand output at Austin and Berlin factories to 10,000 per week, providing only incremental volume from these two factories next year as well as minimal contribution from the Cybertruck with slower and more complex ramp-up of the vehicle,” wrote Rosner. “Our base case now is for Tesla to guide to about 2.1 million deliveries next year, versus current consensus of 2.3 million units.”
Rosner’s cut amounts to about 9% of prior 2024 estimates. Excluding his reduction, the consensus 2024 estimate on Wall Street has barely budged, down about 40,000 units, or 2%, over the past few weeks.
Falling estimates, weak production growth, and weak Cybertruck deliveries in 2024 aren’t what investors want to hear. Tesla’s goal is to grow volumes at 50% a year on average for the coming few years. Next year’s growth would be less than 20% at 2.1 million units. Deliveries are expected to be about 1.8 million units for 2023, up roughly 40% compared with 2022.
“On the bright side, with the company not trying to push as much volume, there could potentially be less pricing pressure next year,” added Rosner.
Tesla cut prices aggressively to start 2023, partly to drive demand growth according to CEO Elon Musk. Investors would like to see prices stabilize. They would also like to see higher demand for Tesla electric vehicles.
Rosner still rates shares Buy. He sees 2024 as a risk for the stock, but “longer term, the next-gen vehicle is a game changer for the industry,” Rosener told Barron’s, adding that it is critically important that the next-generation, lower-cost vehicle arrives on the market in 2025.
Investors typically think of the next-gen vehicle as a smaller Model 3 or Y and refer to it as the Model 2 even though there is no official name. The Model 2 is supposed to open up more of the auto market to Tesla and be a vehicle platform that can sell millions of cars a year.
Overall, about 41% of analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the
S&P 500
is about 55%. A year ago the average Buy rating ratio was about 64%. Price cuts and rising interest rates have sapped some analyst enthusiasm for Telsa stock.
The average analyst price target is about $258 on Tesla stock. A year ago it was about $318.
Tesla stock closed down 0.8% at $242 a share, while the
S&P 500
finished flat and
Nasdaq Composite
rose 0.2%.
Coming into Wednesday trading, Tesla stock was up about 98% year to date, but it is down about 13% over the past 12 months. The S&P 500 and
Nasdaq Composite
were up about 17% and 21%, respectively, over the past 12 months.
Write to Al Root at [email protected]
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