Tesla
stock dropped after weak earnings and downbeat comments from CEO Elon Musk. Wall Street wasn’t feeling very bullish after the report.
Tesla (ticker: TSLA) on Wednesday reported adjusted earnings per share of 66 cents and automotive gross profit margins, excluding regulatory credit sales, of 16.3%. Wall Street was looking for profit of 70 cents and margins of about 17.5%. Operating profit margins came in at 7.6%, down almost 10 percentage points year over year.
Price cuts were responsible for the decline in profitability. The economy is simply making it harder to sell cars, something Musk mentioned several times on the earnings conference call.
“I am worried about the high-interest-rate environment that we are in,” he said. “I can’t emphasize this enough…the vast majority of people buying a car is about the monthly payment.”
Tesla stock fell 9.3% to $220.11 a share, while the
S&P 500
dropped 0.9% and the
Nasdaq Composite
was down 1%.
After earnings, Tesla shares weren’t getting much help from analysts.
“No more rose-colored glasses,” wrote Wells Fargo analyst Colin Langan in a research report, adding the outlook for volume growth is unclear and profit margin pressures continue. “Not only was the Cybertruck ramp tempered, but Tesla is waiting on macro [economic improvement] before going full tilt on the Mexico plant,” he added. Tesla is building its next assembly plant in Mexico.
Langan cut his price target to $250 from $260 a share and maintained his Hold rating on the stock.
Citi analyst Itay Michaeli rates shares Hold as well. He cut his price target to $255 from $271.
“A somewhat worse outcome versus our previewed neutral-to-slightly negative setup,” is how Michaeli characterized the quarter in a note Thursday. “The tone on the [conference] call was noticeably more cautious…tactically, we prefer staying on the sidelines pending a more convincing entry point with visible near-term fundamental catalysts.”
Wedbush analyst Dan Ives also noticed the downbeat tone of the call, referring to it a “mini-disaster” in a report. Ives rates shares Buy but cut his target price to $310 a share from $350.
“The Street wanted to get their arms around the falling margins and constant price cuts seen globally, but instead we heard from a much more cautious Musk,” he wrote.
RBC analyst Tom Narayan, who also rates share Buy, had a more bullish take on the quarter. He did, however, cut his target price to $301 a share from $305.
“Investors [are] missing the forest for the trees,” he wrote in a report Thursday. He has an interesting idea that he believes people might be missing.
“Investors will likely focus their attention on the cautious commentary on 2024 and on the potential delay of the next generation product,” he wrote. “But we suspect this could be all part of a master pivot from being a volume car maker to becoming a Tier 1 supplier to [auto makers].”
Narayan believes Tesla will eventually morph into a supplier of power electronics, batteries, charging, and driver-assistance software. But for now, investors are focused on the car business.
Overall, 40% of analysts covering the stock rate share Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $246 a share, down about $14 a share from just before earnings were reported.
Write to Al Root at [email protected]
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