Tesla stock plunged 9.3% on Thursday, extending a 4.8% drop on Wednesday, as Wall Street downgraded price targets and questioned the growth narrative. Q3 earnings tumbled 37% to just 66 cents per share, the lowest in two years under CEO Elon Musk. Revenue edged up only 9% to $23.35 billion while auto gross margins excluding credits sank to 16.3%.
The disappointing results prompted analysts at Bank of America, Canaccord and Goldman Sachs to slash Tesla stock price targets. Wedbush’s longtime Tesla bull Dan Ives called the earnings call a “mini disaster” and lowered his target to $310 from $350. Tesla is facing near-term headwinds around weaker demand, profitability and manufacturing costs, dimming the story that propelled shares higher in 2022.
Cybertruck Arrives But Musk Cautions Patience
Adding to the gloom, Musk said initial Cybertruck deliveries will start November 30 but warned it will take 12–18 months before the futuristic pickup generates “significant positive cash flow.” Bernstein analyst Toni Sacconaghi said Tesla seems cautious on near-to-medium term growth, reviewing options for 2024 and potentially guiding below consensus.
Tesla risks missing earnings estimates next year if deliveries disappoint and margins retreat further from supply chain and cost pressures. Growth stocks like Tesla demand increasing profits to justify premium valuations. Two straight years of declining earnings per share could shake faith in Tesla’s trajectory.
Musk aired concerns about the slowing economy, echoing warnings from FedEx and others. Ford, GM and Stellantis face United Auto Workers strikes over pay and benefits, benefiting non-union Tesla. But sliding consumer demand as interest rates and prices climb may hamper sales across the sector.
Falling Short of Lofty Expectations
Tesla faces doubters after failing to live up to extraordinarily high hopes. The company was expected to post adjusted earnings per share of $1.01 on revenue of $22.09 billion, per Refinitiv. Cybertruck pre-orders topped 1.5 million after its polarizing unveil in 2019, stoking sky-high anticipation.
But parts shortages and logistics challenges have plagued the industry, while rising battery costs pinch profits. Tesla also spent heavily on new factories in Berlin, Austin and now possibly Canada. While Musk projects 50% annual growth in deliveries, the company may be hard pressed to achieve that amid stiffening competition.
Morgan Stanley analyst Adam Jonas defended Tesla as more than a car company, betting on services like full-self driving, batteries, insurance and energy to drive future earnings. But Bernstein’s Sacconaghi sees Tesla looking increasingly like a “regular auto company” based on its financials, despite its Silicon Valley aura.
Path Forward for Tesla
Tesla has lost its momentum but still holds enviable advantages as the leading electric car maker with a valuable brand and devoted fanbase. However, it needs to execute decisively to recharge growth. Here are some steps Tesla could take:
- Ramp up Cybertruck production efficiently to tap into massive pent-up demand for the head-turning pickup. Get Cybertrucks into eager customers’ hands to generate sales, buzz and profits.
- Optimize costs, especially batteries which comprise a third of EV costs. Partnering with new suppliers could help lower expenses.
- Explore more affordable EV options to broaden addressable market. A mass-market model priced below the Model 3 could draw new buyers.
- Focus intensely on quality control and perfecting manufacturing processes, avoiding any missteps like the Model Y launch.
- Leverage AI and scale to boost operating efficiency, product development and self-driving technology.
- Provide transparency and realistic guidance to rebuild trust with investors after overpromising.
- Accelerate timelines for emerging energy storage and solar products to diversify revenue.
- Consider strategic partnerships, licensing deals or even a potential stake sale to unlock value, provide capital for growth.
The promise of Tesla still shines brightly as it leads the transition to sustainable transport and energy. But the company must hone its operations, curb costs and reinvigorate sales to achieve the next level of growth befitting its lofty valuation. With vision and flawless execution, Tesla can get back on track and realize its mission of catalyzing the world’s transition to renewable energy.
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