Tesla Inc.’s recent price cuts have caused concern among investors and led to lower profit estimates for the electric-vehicle maker. As Tesla prepares to report its fourth-quarter earnings, analysts are eager to see the impact of these cuts on the company’s overall performance.
The increased competition in the global electric vehicle market has put pressure on Tesla’s profit margins, according to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. To maintain investor satisfaction, Tesla needs to demonstrate strong revenue growth and consistent profit per vehicle. However, the downward trend in the stock price since Christmas suggests that shareholders are not expecting overly positive results for the fourth quarter.
Tesla faced challenges at the beginning of 2024, including price cuts in China and production disruptions in Germany due to the Red Sea conflict and supply chain issues. Despite these setbacks, Tesla exceeded Wall Street expectations for its fourth-quarter production and deliveries, providing a glimmer of hope for investors. Analysts predict that Tesla will report adjusted earnings of 73 cents per share on sales of $25.6 billion, compared to adjusted EPS of $1.19 on sales of $24.3 billion in the fourth quarter of 2022.
However, BofA Securities’ John Murphy warns that Tesla will likely continue to face obstacles from pricing actions and uncertainties surrounding its growth until its entry-level/mass-market vehicle arrives in late 2025 or 2026. On a positive note, lower lithium prices could benefit the company.
Adam Jonas, a well-known Tesla bull at Morgan Stanley, recently adjusted his expectations for Tesla’s stock price, lowering his price target to $345 from $380. While this still represents a potential upside of around 67%, it is among the highest price targets compared to the average target of $237 according to FactSet. Jonas attributes this adjustment to the stalling global EV momentum and oversupply in the market relative to demand. He anticipates that Tesla’s outlook for 2024 will be cautious in terms of volume and profitability.
Despite the recent decline in Tesla’s stock price, the company has seen a significant gain of 55% over the past 12 months, outperforming the S&P 500 index. However, in the current month, Tesla’s stock has experienced a 16% decline, while the equity index has seen modest gains of about 2%.
As Tesla prepares to release its fourth-quarter earnings, investors are eagerly awaiting the results to gain insight into the impact of price cuts on the company’s profitability. With increased competition and market challenges, Tesla faces the task of maintaining investor confidence and demonstrating its ability to drive revenue growth in a highly competitive industry.