Interactive Investor

Tesla stock: what new risk warning and target cut mean for investors

It’s been an incredible nine months for Tesla shareholders, but don’t expect the shares to double in value over the next nine, warns this analyst. We run through the latest profit forecast.

27th September 2023 16:01

by Graeme Evans from interactive investor

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A warning over Tesla Inc (NASDAQ:TSLA) earnings in 2024 was softened today when analysts at a leading bank kept their “long-term bullish” stance on the electric car maker.

Today’s note by Deutsche Bank highlighted “meaningful downside risk” to the Wall Street consensus based on the prospect of  limited volume growth next year.

The bank trimmed its price target from $300 to $285 a share, which compares with $244 at today’s opening bell and $291 at the time of July’s second quarter results.

While near-term fundamentals may present challenges, Deutsche Bank continues to view Tesla as the electric vehicle (EV) leader in the automotive sector.

It said: “With General Motors Co (NYSE:GM) and Ford Motor Co (NYSE:F) potentially carrying a heftier labour cost disadvantage going forward (and potentially batteries as well), we think this could place Tesla at an even better competitive cost advantage to the incumbents who are only in the beginning of the EV transition.”

Much of the trajectory for Tesla shares is likely to be driven by the progress of a next-generation platform for a smaller and more affordable model, which is targeted for 2025.

As long as Tesla sticks to this timeline, the bank’s analysts believe that investors will be prepared to look past the soft 2024 and view it as a transitory year.

Deutsche Bank added: “We continue to believe that as Tesla executes on its cost and efficiency initiatives in the next-gen platform, the company could deepen its competitive moat and maintain its lead in the electrification space for years to come.”

The bank’s new price target is based on a multiple of 45 times its 2025 earnings forecast, which compared with 40 times previously.

In the very near term, the bank warns that third-quarter delivery and production figures due next month could miss expectations because of downtime for plant upgrades.

Deutsche Bank said the greater risk is the downside to expectations for 2024 on both the growth and earnings front. It pointed to recent indications from Tesla that it is no longer planning to expand output at its Austin and Berlin factories to 10,000 vehicles per week.

A new electric pick-up truck is in the initial stages of production in Texas and could have a “positive halo effect” for the company during fourth quarter deliveries. However, Deutsche Bank does not expect the vehicle to make a meaningful volume contribution until 2025.

The bank’s base case now is for Tesla to guide to about 2.1 million deliveries next year, versus the Wall Street consensus of 2.3 million units.

It added: “On the bright side, with the company not trying to push as much volume, there could potentially be less pricing pressure next year.”

When Tesla last reported results in July, it highlighted a record production and deliveries performance as revenues neared $25 billion in a single quarter. Its operating margin remained at close to 10%, despite price reductions in the early part of the year.

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