Tesla stock is bracing for a challenging day ahead as the company’s fourth-quarter earnings report fell short of expectations. Adding to the uncertainty, vague guidance for 2024 is causing further concern among investors.
Disappointing Fourth Quarter Report
Now that Wall Street has had time to digest the latest quarterly report, analysts are far from impressed. In fact, some are even lowering their price targets for Tesla stock in light of the earnings report.
On Wednesday evening, Tesla disclosed earnings per share of 71 cents, which fell short of Wall Street’s anticipated 73 cents. Additionally, Tesla management shared a rather ambiguous outlook for automotive sales growth in 2024, stating that it would be significantly lower than in 2023.
They refrained from providing specific figures, despite vehicle sales growing nearly 40% in 2023 to reach 1.8 million units. Analysts were hoping for sales of around 2.1-2.2 million units in 2024, representing a growth rate of approximately 20%. While this growth rate is lower than that of the previous year, analysts would have preferred a more definitive forecast from Tesla.
Analysts Express Concerns
In a scathing report published on Thursday, Wedbush analyst Dan Ives expressed his disappointment with Tesla’s conference call. He wrote, “We were dead wrong expecting Musk and team to step up like adults in the room on the call and give a strategic and financial overview of the ongoing price cuts, margin structure, and fluctuating demand.” Ives referred to the call as a “train wreck.”
Unsurprisingly, Tesla’s stock price took a hit, dropping almost 8% in premarket trading. Meanwhile, S&P 500 and Nasdaq Composite futures remained relatively steady.
Despite his criticism, Ives still maintains a Buy rating on Tesla shares, albeit with a lowered price target of $315, down from $350. RBC analyst Tom Narayan also rates the shares as Buy, although he made a more conservative downward revision to his target price, adjusting it from $300 to $297 following the Tesla earnings call.
Tesla Faces Challenges Ahead
In a recent report, a Wells Fargo analyst expressed concerns about Tesla’s car gross margin expectations and delivery estimates. Despite a vague guide, the analyst suggests that Tesla’s next-generation vehicle platform, which offers a lower price Tesla EV, is still several quarters away from impacting numbers.
The report goes on to mention that the recent price cut will likely result in falling margins by 2024. Tesla’s automotive gross profit margins, excluding regulatory credit sales, increased to about 17.1% in the fourth quarter of the previous year, up from 16.3% in the third quarter of 2023. However, analysts had initially predicted margins of almost 18% for 2024, but those estimates are now at risk.
Following the conference call, there have been at least seven price target cuts from Wall Street analysts. While most analysts reduced their target prices, Bernstein analyst Toni Sacconaghi maintained his $150 price target for Tesla stock and reiterated his Sell rating. Sacconaghi believes that 2024 will be a challenging year, and it is increasingly apparent that 2025 will not be any better.
Tesla management appears to share Sacconaghi’s concerns about 2024, which has caused some worry among Tesla bulls who are hoping for a brighter future in 2025.
As a result of these developments, the average analyst target price for Tesla stock has dropped to around $226, about $12 lower than before the conference call.
With Tesla stock off about 16% year to date, investors have been impacted by more price cuts and weakening demand for electric vehicles.
Sources: FactSet, Dow Jones