Tesla, the renowned electric vehicle (EV) giant, is making waves in the industry once again with its strategy of offering vehicle discounts and slashing prices in 2024. This approach, aimed at boosting demand, has raised concerns among analysts and investors about the company’s profit margins and potential struggles in the coming year. As a result, Tesla’s stock has experienced a decline, prompting further speculation about its financial performance.
Tesla’s Continued Price Cuts in 2024
Despite a challenging start to the year, Tesla remains committed to its price-cutting strategy. In January, the company decided to trim vehicle prices in China, targeting the popular Model 3 and two variants of the Model Y. Shortly after, Tesla also announced significant price reductions for the Model Y in several European countries, even as its Berlin production facility was scheduled to suspend operations for two weeks.
Gary Black, the managing partner of the Future Fund, recently revised his 2024 earnings estimates for Tesla based on these price cuts. He lowered his prediction from $3.90 per share to $3.75 per share, citing concerns that Tesla’s approach may be training customers to wait for better deals. While Tesla management argues that these price reductions and inventory discounts are not value destructive, some analysts question the long-term implications of such a strategy.
Impact on Tesla’s Stock Performance
Tesla’s price-cutting strategy has had a noticeable impact on its stock performance. In January alone, the stock has retreated more than 13%, dropping below key levels of support. As analysts eagerly await news on Tesla’s auto gross profit margins and stability in vehicle pricing, the company’s stock continues to face downward pressure. It remains to be seen whether Tesla can regain momentum and alleviate concerns among investors.
Tesla’s Price Cutting Strategy in 2023
To maintain sales momentum in 2023, Tesla implemented aggressive price cuts and offered discounts throughout the year. However, these moves resulted in a decline in auto gross margins, which had previously reached a peak of 30% in Q4 2021 due to industry-wide chip shortages. The continuous price reductions have driven auto gross margins well below 20%, prompting speculation about the sustainability of Tesla’s profitability.
Analysts and Tesla bulls initially believed that the price cuts would come to an end and that auto gross margins had bottomed out. However, with the upcoming release of Tesla’s Q4 earnings and revenue, experts are closely monitoring the company’s pricing strategies and their impact on margins in 2024. Bernstein analyst Toni Sacconaghi has identified auto gross profit margins as a key area of concern and estimates a potential drop in margins for the fourth quarter.
Wall Street’s Concerns and Predictions for 2024
Wall Street analysts have expressed their apprehension regarding Tesla’s performance in 2024. Barclays analyst Dan Levy, for instance, lowered the firm’s price target on Tesla stock to $250, down from $260, and maintained an equal weight rating on the shares. Levy believes that Tesla will face volume pressure in a demand-constrained environment in 2024. This suggests that, for the first time in Tesla’s history, volume will be predominantly driven by demand rather than the company’s production capacity. Levy predicts that Tesla will deliver 1.97 million units in 2024.
Tesla’s Fourth-Quarter Earnings and Projections for 2024
Tesla’s fourth-quarter earnings and revenue report, scheduled for release on January 24th, will shed further light on the company’s financial performance. In the previous quarter, Tesla surpassed Wall Street predictions by selling a record number of vehicles and meeting full-year expectations.
Analysts’ forecasts for Q4 indicate a 39% decrease in earnings per share (EPS) to 73 cents, with revenue expected to increase by 5% to $25.61 billion. Auto gross profit margins, excluding regulatory credits, are projected to be around 17.1%, according to FactSet. Looking ahead to 2023, analysts anticipate a 25% decline in earnings to $3.07 per share, accompanied by sales of $97.46 billion, a 20% increase compared to 2022. Notably, analysts’ profit estimates for Q4 2023 experienced a 17% decrease in the final three months of the year.
As analysts turn their attention to 2024, they expect earnings to remain below 2022 levels. The consensus among Wall Street analysts is that Tesla will achieve an EPS of $3.72 and generate $117.03 billion in revenue. This forecast indicates a 34% decrease in profit compared to the initial estimate of $5.65 per share in January 2023. Analysts do, however, anticipate a growth in auto gross profit margins in Q1 2024, reaching 18.8%.
Tesla Stock Performance and Market Outlook
Tesla’s stock performance has been under scrutiny amid the company’s price-cutting strategy. In January, the stock has experienced an 11% decline, falling below both the 50-day and 200-day moving averages. Tesla’s stock is currently in an awkward double-bottom base, with a potential buy point of $278.98, according to MarketSmith analysis. The relative strength line, which tracks the stock’s performance against the S&P 500, is at its lowest level since late May, indicating a potential weakness in Tesla’s market position.
Despite the recent decline, Tesla’s stock had an exceptional performance in 2023, outperforming the broader S&P 500 index. It currently ranks fifth in the IBD Auto Manufacturers industry group, with a Composite Rating of 68 out of 99. The stock also holds a Relative Strength Rating of 67 and an EPS Rating of 88. As Tesla navigates the challenges posed by its price-cutting strategy, investors eagerly await the company’s next move and the impact it will have on its market position.
Conclusion
As Tesla continues to slash prices and offer discounts in 2024, concerns have arisen regarding the company’s profit margins and overall financial performance. The stock has experienced a decline, prompting analysts to closely monitor Tesla’s auto gross profit margins and stability in vehicle pricing. While some experts question the sustainability of Tesla’s price-cutting strategy, others anticipate a drop in margins for the fourth quarter. Wall Street analysts predict a challenging year for Tesla in 2024, with volume pressure and a demand-constrained environment. As Tesla prepares to release its fourth-quarter earnings and revenue report, the market eagerly anticipates insights into the company’s financial performance and projections for the coming year.
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