As Tesla (TSLA) prepares to initiate preliminary Cybertruck deliveries at the end of this month, a recent analysis suggests that it may be beneficial for the company to shelve the highly-anticipated vehicle. The stock of Tesla experienced a slight drop on Monday.
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Philippe Houchois, an analyst at Jefferies, revised his firm’s price target for TSLA to $210 from $250, while maintaining a hold recommendation on the shares. In a note regarding the Cybertruck, Houchois expressed his opinion.
“However unlikely just a few days before first deliveries, canceling Cybertruck would probably be positive for shares,” Houchois wrote on Monday. “With 2024 already a lost year for growth, it would help Tesla refocus on an edge that was built on simplicity, scale and speed.”
Tesla stock experienced a 0.3% decline to $233.50 with above-average volume during Monday’s trading. TSLA has seen nearly a 17% increase in November ahead of Cybertruck deliveries, scheduled to commence on Nov. 30.
Third Quarter Triggers Tesla Pessimism
The share price of TSLA fell after the company reported worse-than-expected Q3 earnings and revenue on Oct. 18. Tesla disclosed a 37% decrease in third-quarter earnings to 66 cents per share, the lowest in two years for Chief Executive Elon Musk-led Tesla.
Furthermore, quarterly revenue surged by 9% to $23.35 billion. Tesla’s auto gross profit margins, excluding regulatory credits, dropped to 16.3%. Auto gross margins, excluding regulatory credits and leases, stood at 18.1% in Q2, declining from 19% in Q1, falling below the 20% gross margin “floor” Tesla had aimed for previously.
On the earnings call, Elon Musk urged caution, issuing warnings about the upcoming Cybertruck and the overall economy. The following day, Tesla stock plummeted by 9.3%. Tesla did announce that initial Cybertruck deliveries would begin on Nov. 30, but Musk mentioned that it would take 12-18 months before the new vehicle becomes a “significant positive cash flow contributor.”
“I just want to temper expectations for Cybertruck,” Musk told investors during the Q3 earnings call, adding that there will be “enormous challenges” in achieving volume production with the Cybertruck. He also stated that Tesla would end up producing around 250,000 Cybertruck units per year, with his best guess being that Tesla will reach that output sometime in 2025.
On Nov. 6, Morgan Stanley analyst Adam Jonas wrote that investors should look for several factors that would indicate that the Tesla stock decline was stopping.
Jonas mentioned that Tesla must stop missing consensus EPS estimates while successfully launching new vehicles, including, but not limited to, the Cybertruck. The Morgan Stanley analyst added that Tesla must show that its business model is transitioning toward licensing and software, and other products that have “relevance beyond the auto market.”
“The Cybertruck bar has been significantly lowered,” Jonas wrote. “While we continue to view the model as relatively insignificant within the grand scope of Tesla’s future portfolio, we would not underestimate the impact of launch/ramp execution on sentiment.”
The Cybertruck will be the EV maker’s first new passenger vehicle since the Model Y launched in early 2020.
Tesla Targets Record Q4
Meanwhile, Tesla is aiming to meet its target of delivering 1.8 million vehicles in 2023. As of six weeks into Q4, Tesla China insurance registrations, an approximate gauge for vehicle deliveries, totaled 55,500 for the quarter, around 7% lower compared to the same point in Q3. Data for last week is due on Tuesday.
With the first Cybertrucks arriving at the end of November, the EV company unveiled its new Model 3 in China on Sept. 1 with official sales starting on Oct. 19. Tesla started delivering the Model 3 on Oct. 26. The global EV giant also introduced a slightly updated Model Y in China earlier in October.
Through the end of Q3, Tesla delivered about 1.3 million vehicles globally for the year, requiring the company to deliver 480,000 in Q4 to reach 1.8 million. This is a 3% increase from its record 466,000 deliveries in the second quarter. Tesla reaffirmed its 1.8 million vehicle delivery goal in its third-quarter earnings.
However, analyst projections have decreased since Oct. 18. Wall Street consensus has Tesla vehicle deliveries in 2023 totaling 1.79 million, just below the 1.8 million target, according to FactSet. Additionally, Wall Street is currently expecting 473,000 deliveries in Q4.
Analysts’ average 2023 EPS estimate has also dropped by 7% since Q3 earnings. Wall Street is predicting 2024 earnings to be lower than 2022, with analysts expecting EPS of $3.92, down 14% versus the $4.50 view before Q3 earnings.
Cybertruck And Tesla Stock
TSLA has surged about 90%, outperforming the broader S&P 500 index, in 2023, as investors believe that the EV maker’s growth story remains strong, despite near-term growth challenges. According to MarketSmith analysis, Tesla stock is building the right side of a double-bottom base, giving it a 278.98 buy point.
Tesla stock is ranked sixth in the 35-stock IBD automaker industry group. The S&P 500 component has a 90 Composite Rating out of a best-possible 99. Tesla stock also has a 90 Relative Strength Rating and an 88 EPS Rating.
For more coverage, please follow Kit Norton on X, formerly known as Twitter, @KitNorton.
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