Shares of Tesla Inc. experienced a decline on Tuesday as J.P. Morgan analyst Ryan Brinkman maintained his long-standing bearish call on the electric-vehicle giant. This came after Tesla missed its already-lowered delivery expectations.
The stock, listed as TSLA, fell by 0.9% in premarket trading. Yesterday, following the delivery miss announcement, the stock initially dropped by as much as 3% during the day, but later recovered to close with a 0.6% increase.
Brinkman has consistently given Tesla's stock an underweight rating for at least the past three years, placing him among the seven analysts who hold a bearish view out of the 45 analysts surveyed by FactSet.
As part of his bearish call, Brinkman raised his stock price target to $135 from $120. He also adjusted the timeline for this target to December 2024 from December 2023.
While the delivery data was disappointing, Brinkman explained that the decline in expectations is not as significant compared to other expectation resets for Tesla. This is because even with the considerable drop in average selling prices, the volume weakness has continued, indicating that lowered prices have failed to generate increased sales volumes. Ultimately, this could have a further negative impact on profits.
Tesla Faces Earnings Expectations Downturn
The current year has been a rollercoaster for Tesla, as their earnings expectations have taken a sharp decline. The FactSet consensus for third-quarter earnings per share has plummeted from $1.40 at the end of 2022 to a mere 75 cents. Despite this setback, Tesla's stock has remarkably soared by 104.3% year to date, showcasing its resilience in the market.
Comparatively, the Global X Autonomous & Electric Vehicles ETF DRIV has experienced a more modest growth of 17.1% this year, while the S&P 500 index SPX has gained 11.7%.
However, as expectations for 2023 operating profit for Tesla reveal a less favorable outlook, legacy automakers such as Ford Motor Co. (F) and General Motors Co. (GM) surpass the electric vehicle giant. According to FactSet, the current consensus for Tesla's earnings before interest, taxes, depreciation, and amortization (Ebitda) stands at $16.11 billion, falling short in comparison to Ford's $16.30 billion and GM's $16.88 billion.
Tesla's third-quarter results are highly anticipated and are scheduled to be released on October 18, following the closing bell.
While some Wall Street proponents argue that Tesla's lower prices resulted in missed deliveries rather than a problem with demand, analyst Brinkman contradicts this claim. Brinkman suggests that Tesla's manufacturing downtime, taken for upgrades and preparations for new model launches, ultimately led to a decrease in supply. Interestingly, Tesla seems to be sitting on a "near record level of inventory," contrary to assumptions that low supply is the primary issue at hand. Additionally, other automakers have managed to navigate supply disruptions by implementing price increases.
Tesla's performance in the coming quarter will surely shed light on the company's ability to overcome these challenges and maintain its position in the market.
Tesla's Struggling Deliveries: A Closer Look
In the face of ongoing challenges, Tesla has experienced a significant decline in consensus deliveries volume, revenue, earnings, and cash flow. While some may point to increased competition as a contributing factor, our analysis suggests that this slump can primarily be attributed to a misinterpretation of earlier trends and a touch of 'irrational exuberance.'
It is important to dissect these findings further to gain a comprehensive understanding of the situation. Let's delve into the factors that have led to Tesla's current predicament.
Mis-Extrapolation of Earlier Trends
One key aspect responsible for the downward spiral in Tesla's performance is the mis-extrapolation of earlier trends. This misinterpretation has resulted in an unrealistic projection, which has ultimately affected the company's deliveries volume, revenue, earnings, and cash flow. It serves as a stark reminder of the dangers of relying solely on past performance as a barometer for future success.
The Pitfall of 'Irrational Exuberance'
In addition to mis-extrapolation, 'irrational exuberance' has also played a part in the decline of Tesla. This term refers to an overblown sense of optimism and enthusiasm that can lead to unrealistic expectations and subsequent disappointment. It is crucial for investors and analysts to exercise caution and maintain a realistic perspective when evaluating the prospects of any company, including Tesla.
Enhanced Competition
While some may argue that increased competition has contributed to Tesla's struggles, it is important to note that it is not the sole cause. While competition has undoubtedly intensified, it is necessary to understand that the misinterpretation of trends and inflated expectations have played more prominent roles in the current predicament.
By taking a closer look at the factors impacting Tesla's declining deliveries volume, revenue, earnings, and cash flow, we can gain valuable insights into the situation. It is essential for both investors and industry observers to discern the difference between genuine challenges and the potential consequences of misinterpretation and speculative fervor. Only through a balanced assessment can a true understanding of Tesla's trajectory be achieved.
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