Wall Street Shows Caution Towards Tesla Stock Ahead of Q3

Tesla Stock

As Tesla (NASDAQ:TSLA) gears up for the release of its third-quarter earnings and revenue report on October 18, Wall Street analysts are taking a more cautious stance towards the electric vehicle (EV) giant. Recent data showing a significant drop in Tesla’s delivery figures has prompted several analysts to revise their price targets and outlook for the company. While there is still optimism about Tesla stock‘s long-term potential, the short-term challenges are becoming more evident.

Analysts Adjust Price Targets for Tesla Stock

This week, a number of reports from financial analysts have resulted in downward revisions of their price targets for Tesla’s stock. One report even raised concerns about the continued decline of Tesla’s gross profit margins, potentially extending into the fourth quarter. Despite these concerns, Tesla saw a 2.2% increase in its stock price on Tuesday, closing at $265.44, surpassing an early entry point. The previous day, Tesla managed to recover from early losses, ending the day down just 0.3% at $259.67. Over the course of the previous week, Tesla shares experienced a gain of over 4%.

Delivery Figures Disappoint

Tesla’s third-quarter delivery figures have raised eyebrows on Wall Street. The company reported delivering 435,059 vehicles in the third quarter, which marked a 6% decrease compared to the previous quarter. Furthermore, data from the China Passenger Car Association indicated that Tesla sold 74,073 vehicles produced in China during September, including exports. This data revealed a 12% decline compared to August and an 11% drop compared to the same period in 2022.

Earnings and Revenue Expectations

Despite the challenges, Wall Street consensus estimates for Tesla’s third-quarter earnings remain at 74 cents per share, with revenue projected to reach $24.32 billion, according to FactSet.

Analysts’ Revisions

UBS lowered its 12-month price target for Tesla stock from $290 to $266, reflecting growing concerns about the short-term outlook. Jefferies also revised its price target downward from $265 to $250 and predicts that Tesla will report third-quarter revenue of $23.87 billion with earnings per share of 64 cents.

Wells Fargo maintained its equal weight rating on Tesla but adjusted its 12-month price target from $265 to $260. The firm emphasizes that for Tesla to meet its ambitious goal of delivering 1.8 million units, it will need to deliver approximately 475,000 units in the fourth quarter. This expectation relies on the success of the revamped Model 3 in China and the highly anticipated Cybertruck, which has reportedly garnered 1.9 million preorders.

Gross Profit Margin Concerns

Wells Fargo also anticipates a decline in Tesla’s gross profit margins, with expectations of margins falling below 15%. The firm predicts gross profit margins of 16.3% in the third quarter and further weakening in the fourth quarter. Additionally, Wells Fargo adjusted its full-year earnings per share (EPS) projection for Tesla from $3.20 to $2.95.

Price Reductions Impact Margins

Throughout the year, Tesla has aggressively slashed vehicle prices, impacting auto gross profit margins (excluding regulatory credits), which have dipped below 20%. Recently, Tesla made headlines by reducing the prices of its U.S.-made Model 3 and Model Y vehicles.

Optimism for the Future

Despite the short-term challenges, Tesla remains a focus of optimism for the future. Many analysts and investors are banking on a strong rebound in deliveries during the fourth quarter, driven by the introduction of the new Model 3 in China and the highly anticipated launch of the Cybertruck.

Morgan Stanley analyst Adam Jonas maintains an overweight rating on Tesla and has set a price target of $400. He suggests that Tesla’s potential extends beyond its traditional business model, envisioning a convergence between electric vehicles (EVs) and smartphones.

Looking Ahead

As of now, Tesla’s stock is trading below a key buy point of $278.98 in a cup-with-handle base, according to MarketSmith. An upward move above the intraday high of $263.20 from Thursday could offer an early entry opportunity, especially as the stock price breaks out from a downtrend in the handle.

Additionally, some analysts have pointed out that Tesla stands to benefit from the United Auto Workers strike against traditional automakers like Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA), as Tesla operates as a nonunion entity in the automotive industry.

In conclusion, while Tesla faces near-term challenges and analysts have revised their price targets accordingly, there is still confidence in the company’s long-term potential and its ability to rebound, especially as it continues to innovate and expand its product offerings in the EV market.

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.