Morgan Stanley’s Adam Jonas has turned more cautious on Tesla, cutting his price target to $380 from $400 following what he called Tesla’s “most cautious conference call in years.” The downbeat guidance from Tesla management on macro conditions, demand, margins, and new product launches in Q3 2023 poses challenges to the bull narrative.
In Jonas’ view, Q3 results undershot expectations. But it was the skeptical forward-looking commentary that really shook confidence. Tesla executives warned about economic headwinds from high interest rates and weakening consumer spending.
Most concerning was guidance around the hotly anticipated Cybertruck. CEO Elon Musk cautioned production ramp will be difficult over the next 18 months, and Details Cybertruck Ramp, Advertising, Giga Mexico. He projected a gradual climb to just 250,000 units annually by 2025, far below more optimistic expectations. Musk also warned Cybertruck will initially be margin dilutive.
With Cybertruck as Tesla’s only major new offering until 2024, its muted impact presents headwinds. Jonas believes negative 2024 earnings revisions could outweigh Tesla’s long-term growth story in the near term.
Musk’s surprisingly tepid Cybertruck guidance indicates volume and profitability challenges. The vehicle features many manufacturing firsts for Tesla, including a 48-volt “low voltage” architecture, 800-volt powertrain, and large stamped metal and glass parts. These unproven designs risk production delays and cost overruns.
While Cybertruck pre-orders exceeded 1 million, Tesla seems to be backpedaling from more enthusiastic volume scenarios like 500,000+ per year. Combined with margin pressures from its complex design, Cybertruck may disappoint relative to hopes.
With little else new in 2023-24 beyond Cybertruck, Tesla’s muted outlook poses risks. Jonas believes the narrative of strong earnings growth powering Tesla’s premium valuation looks shakier post-Q3 2023.
Tesla made its concerns clear – today’s economic climate presents headwinds. Cybertruck ramp-up will be slow and costly. This injects uncertainty and makes Tesla’s sky-high growth multiple harder to justify near-term. While the company’s long-term direction stays intact, markets may need to reset expectations after Tesla’s “most cautious call in years.”