Top analyst cuts Tesla price target ahead of ‘cautious’ Q4 earnings

Updated at 8:40 AM EST

Tesla  (TSLA) – Get Free Report shares edged higher in early Monday trading, lagging the broader market, after a key Wall Street analyst cut his price target on the group just days ahead of its fourth-quarter-earnings report. 

Tesla shares have been one of the worst performing blue chips on Wall Street this year, as well as one of the top five decliners on the S&P 500, with a 2024 slump of around 15%. 

Related: Tesla strategic move could test Musk’s market-share focus

Fading EV demand, a series of price cuts in key markets and comments from CEO Elon Musk suggesting a shift in focus toward developing the group’s artificial-intelligence potential have combined as significant headwinds for the world’s most valuable carmaker.

Even a record fourth-quarter-delivery tally of just under 485,000 new vehicles, as well as the launch of its long-delayed Cybertruck, hasn’t been able to arrest the stock’s recent slump, which has lopped more than $235 billion from Tesla’s market value over the past six months.

And with Tesla’s fourth quarter earnings slated for after the close of trading on Wednesday, Morgan Stanley analyst Adam Jonas, one of the most respected Tesla watchers on Wall Street, is bracing for more bad news.

Jonas: Global EV supply-demand imbalance 

“There is continually growing evidence that the global EV market is in an unfavorable balance of supply (growing) vs. demand (slowing),” Jonas wrote in a client note published Monday.  “Global EV momentum is stalling. The market is oversupplied.”

On price cuts, Jonas noted that reductions in China and Europe have already matched or exceeded his full-year forecasts. The analyst added that the recent moves in Germany came only days after it unveiled plans to suspend production owing to supply disruptions linked to attacks on cargo ships in the Red Sea.

Tesla is likely to forecast 2024 deliveries of around 2.2 million vehicles, even as global EV demand continues to fade. (Photo by David Butow/Corbis via Getty Images)

David Butow/Getty Images

Jonas also noted that fewer of Tesla’s U.S. vehicles will be eligible for incentives linked to the Biden administration’s Inflation Reduction Act, owing to foreign-part-sourcing rules. He said global incentives were likely to weaken “as governments reassess budgets” in a slowing economy. 

“We anticipate Tesla’s 2024 outlook to be cautious on volume and profitability,” Jonas wrote, citing “tough sledding” for the EV market that will offset the group’s AI and robotics ambitions.

Jonas cut his price target on Tesla by $35, to $345 a share, while holding his overweight rating in place.

Tesla shares were marked 0.14% higher in pre-market trading to indicate an opening-bell price of $212.48 each. 

Analysts expect Tesla to post a bottom line of 74 cents a share, down around 38% from the same period in 2022, with revenue rising 5.1% to $25.56 billion.

It’s all in the (profit) margins

Tesla’s gross margins, which Wall Street closely tracks given Musk’s recent focus on market share over profits, are likely to narrow to around 17.7%, according to Wall Street forecasts, compared with levels of around 25% over the fourth quarter of 2022. 

More Tesla:

Upgraded version of popular Tesla models now available in U.S.  Tesla bull calls company’s latest move ‘value destructive’   Musk: AI push requires massive Tesla ownership change

Investors will also focus on the group’s 2024 delivery outlook, following a record 2023 tally of around 1.181 million, with analysts expecting a target in the region of 2.2 million. 

Short interest — measuring bets that a stock will decline in price — in Tesla remains elevated at the highest levels on Wall Street, as well, suggesting a cautious backdrop ahead of Wednesday’s earnings report.

Investors have placed bets against the group of around $18.52 billion, or 3% of the stock’s entire float, according to recent data from S3 partners. 

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