Tesla stock took a hit following disappointing earnings and discouraging remarks from CEO Elon Musk. The report left Wall Street feeling unenthusiastic about the company's prospects.
On Wednesday, Tesla (ticker: TSLA) announced adjusted earnings per share of 66 cents and automotive gross profit margins (excluding regulatory credit sales) of 16.3%. Analysts had anticipated earnings of 70 cents and margins of approximately 17.5%. Operating profit margins fell to 7.6%, a decline of nearly 10 percentage points compared to the previous year.
The decrease in profitability can be attributed to price cuts. The current economic climate presents challenges in car sales, a point highlighted by Musk during the earnings conference call. "I am concerned about the high interest rate environment that we are currently facing," he expressed. "I cannot stress enough that for the majority of car buyers, it all comes down to the monthly payment."
Tesla stock experienced a 7.2% drop in premarket trading, reaching $225.13 per share. Meanwhile, S&P 500 futures remained flat, and Nasdaq Composite futures saw a slight uptick of 0.1%.
Unfortunately, analysts did not provide much support to Tesla shares after the earnings report.
Wells Fargo analyst Colin Langan stated in a research report, "No more rose-colored glasses," expressing uncertainty about volume growth and ongoing profit margin challenges. He added, "Not only was the Cybertruck ramp tempered, but Tesla is waiting for macroeconomic improvement before fully committing to the Mexico plant" (referring to Tesla's upcoming assembly plant being constructed in Mexico).
The news was disheartening for investors. Langan revised his price target to $250 per share from $260, maintaining his Hold rating on the stock. Citi analyst Itay Michaeli also rates shares as Hold and adjusted the price target from $271 to $255.
A somewhat worse outcome than previously anticipated, characterized Michaeli in a report on Thursday. The tone of the conference call revealed a noticeable shift towards caution. In light of this, we prefer to remain on the sidelines until a more convincing entry point with visible near-term fundamental catalysts emerges.
The downbeat tone of the call did not go unnoticed, with Wedbush analyst Dan Ives labeling it a "mini-disaster" in his report. Instead of gaining a clearer understanding of the declining margins and constant price cuts seen globally, investors were greeted with a much more cautious Elon Musk.
Although Ives still rates the shares as Buy, he has reduced his target price to $310 per share from $350. On the other hand, RBC analyst Tom Narayan continues to rate the shares as Buy. Despite cutting his target price to $301 per share from $305, he holds a more bullish outlook for the quarter.
According to Narayan's report on Thursday, investors seem to be overlooking a crucial aspect. He believes that the focus will be on the cautious commentary regarding 2024 and the potential delay of the next generation product. However, Narayan speculates that this might be part of Tesla's master plan to transition from being solely a volume car maker to becoming a Tier 1 supplier to auto makers.
Narayan envisions Tesla ultimately transforming into a supplier of power electronics, batteries, charging infrastructure, and driver assistance software. While this is an intriguing idea, investors are currently more concerned with the performance of Tesla's core car business.
Currently, 40% of analysts covering the stock rate it as Buy. This falls slightly below the average Buy-rating ratio for stocks in the S&P 500, which sits around 55%. Additionally, the average analyst price target has decreased by approximately $14 per share since the earnings report.