Tesla’s share price has plunged nearly 25% over the past week amidst growing concerns about softening demand for its electric vehicles. The selloff accelerated this week after battery supplier Panasonic reported reduced automotive battery production and analysts at Bernstein warned of coming margin compression.
Tesla stock dropped 5% on Monday to close below $200 per share for the first time since late 2020. The downward spiral began after Tesla’s disappointing Q3 earnings report on October 19th, where CEO Elon Musk acknowledged demand challenges, especially for the delayed Cybertruck and Musk Details Cybertruck Ramp, Advertising, Giga Mexico on Tesla Earnings Call.
In its quarterly report, Panasonic said battery production in Japan dropped 13% year-over-year due to “changes in production volume at the request of automotive manufacturers.” Panasonic’s batteries Tesla models like the Model S and Model X, reveal of lower volumes likely signals weakening interest in higher-priced Tesla.
Analyst Toni Sacconaghi from Bernstein Research added further pressure as he downgraded the stock on predictions of margin declines next year. Sacconaghi sees Tesla being forced to cut prices and offer incentives to sustain delivery growth targets. He forecasts Tesla’s 2024 EPS falling below consensus estimates.
Bernstein has set a $150 price target on Tesla stock, nearly 30% below current levels. The bearish outlook is based on projections of lower profitability as Tesla copes with macroeconomic headwinds. Stimulus rollbacks may also curb EV demand.
During Tesla’s earnings call, Elon Musk tried to manage expectations around the Cybertruck. He called the highly anticipated pickup a “financial nightmare” that will be “tight” to produce profitably at its aggressive $39,900 starting price, cybertruck was originally supposed to launch in 2021 but has faced repeated delays and Tesla sets november 30 Cybertruck deliveries at Texas factory.
Between rising rates, inflation, and energy costs, Musk noted that affordability would become critical to sustain Electric Vehicles adoption. This hints at a need to cut costs and offer cheaper cars, potentially sacrificing margins.
Tesla faces a narrow path to keep demand and profits up in a deteriorating economic climate. But Musk has defied skeptics before by ramping production and boosting volumes. With factories in Austin and Berlin scaling up, Tesla expects 50% annual delivery growth for the next few years.
But the road ahead looks rocky. Tesla shorts have already reaped $3 billion in mark-to-market profits during the post-earnings selloff. Bernstein’s projected EPS of $2.59 for 2023 falls well short of the $3.30 consensus.
For now, Tesla still retains its dominance of the EV market. But growing competition from the likes of Ford, VW, Hyundai, and startups like Rivian threatens to erode that lead in the coming years. Tesla’s ability to achieve continued growth and profitability against those rivals remains an open question.