Shares of Ford Motor Co fell 3.8% before the bell on Friday, after the automaker reported wider losses from its electric-vehicle (EV) business due to pressure from a price war sparked by industry leader Tesla.
Futures for Wall Street's main stock indexes rose on Friday as robust forecasts from Amazon.com and Intel lifted beaten-down megacaps, while investors awaited key inflation data during the day.
General Motors (NYSE: GM) once saw electric vehicles (EVs) as the path to growth in the auto industry, but that tune changed this week. Management said they will slow some investment in EVs and focus on lowering costs to be profitable, which may mean more trucks and SUVs produced
U.S. stock index futures climbed on Friday as robust forecasts from Amazon.com and Intel along with a pullback in Treasury yields lifted megacaps, while investors awaited a key inflation data during the day.
The past 30 years have featured no shortage of next-big-thing investment trends on Wall Street. Everything from the advent of the internet to the development of artificial intelligence (AI) has captivated investors' attention. But over the coming years, it's the rise of electric
Tesla (
NASDAQ:TSLA
) has created massive wealth for long-term investors, rising a whopping 16,144% since its IPO (initial public offering) in 2010. However, due to a sluggish macro environment, rising interest rates, supply-chain disruptions, and elevated inflation, shares of Tesla are down about 50% from all-time highs. While investors might view Tesla as an enticing contrarian pick at current levels, I'm bearish on the automobile giant due to rising competition, narrowing profit margins, and falling revenue growth.
Tesla Disappoints Investors in Q3 of 2023
Tesla announced its Q3 results recently and reported revenue of $23.35 billion with adjusted earnings of $0.66 per share. Comparatively, Wall Street forecast revenue at $24.1 billion with earnings of $0.73 per share in the quarter. It was the first time in more than four years that Tesla failed to beat consensus estimates for both revenue and earnings.
In the year-ago quarter, Tesla reported revenue of $21.45 billion and earnings of $0.95 per share. So, while revenue grew 9%, adjusted earnings fell by 44% year over year in the September quarter for one of the world’s leading electric vehicle manufacturers.
Tesla reduced its cost of goods sold per vehicle in Q3 to $37,500 as its gross profits narrowed by 22%. The company explained that product costs at its new factories were higher than those at established ones as it continues to implement upgrades and benefit from unit cost reductions.
Tesla spent $1.16 billion in research and development compared to $733 million in the year-ago period. It more than doubled the size of its AI (artificial intelligence) training compute for its expanding datasets and Optimus robot project.
Tesla’s Profit Margins are Falling
In Q3 2023, Tesla reported an operating margin of just 7.6% compared to 17.2% in the prior-year period. Its gross margins narrowed by 719 basis points to 17.9%, while operating expenses surged by 43% in the September quarter.
Its declining profit margins and rising capital expenditures meant Tesla ended Q3 with free cash flow of $848 million, 74% lower than the $3.3 billion it generated last year.
Tesla
accounts for 20% of total EV shipments in the world and 50% of the market in the U.S. However, due to rising competition, higher interest rates, and lower consumer spending, Tesla was forced to cut its vehicle prices in the past year, negatively impacting its bottom line.
Previously, Tesla shares commanded a premium valuation due to its vast scale of production, widening product portfolio, and industry-leading margins. But in the last 12 months, its profit margins have been lower than some legacy auto manufacturers.
Another major headwind for Tesla in terms of profit margins will be its Cybertruck, which is expected to begin deliveries by the end of 2023. CEO
Elon Musk cautioned investors that the Cybertuck would not deliver significant cash flows for at least 12 months once production begins.
Musk emphasized, “It is going to require immense work to reach volume production and be cashflow positive at a price that people can afford.”
Tesla is Part of an Expanding Market
While Tesla stock is expected to remain volatile in the near term, the EV heavyweight is part of a rapidly expanding market. According to a report from
Statista, the electric vehicle market is projected to reach $561.3 billion by the end of the year. It is also forecast to grow by 10.07% annually and surpass $906 billion in 2028. EV sales are estimated to increase from 10.25 million in 2022 to 17.07 million in 2028, providing Tesla with enough room to expand its revenue in the upcoming decade.
However, in addition to the ongoing economic downturn, Tesla will have to navigate competition from established companies such as Ford (
NYSE:F
), General Motors (
NYSE:GM
), and Volkswagen (
DE:VOW
), as well as new-age players like BYD (
OTC:BYDDF
), NIO (
NYSE:NIO
) and Lucid (
NASDAQ:LCID
).
Is Tesla Stock a Buy, According to Analysts?
Out of the 33 analysts covering TSLA stock, 14 recommend a Buy, 14 recommend a Hold, and five recommend a Sell. The
average Tesla stock price target is $252.61, implying 22.8% upside potential.
The Key Takeaway
Given consensus earnings estimates of $3.22 per share in 2023, TSLA stock is priced at 66x forward earnings, which is quite steep for a company that is struggling to grow its cash flows. Due to its lofty valuation, pricing pressures, and tepid consumer demand, I expect Tesla stock to underperform the broader markets in the next 12 months.
Disclosure
Bible-quoting, tough-talking Shawn Fain on Wednesday scored his first big victory against the Detroit Three through a tentative labor deal with Ford. But the jury is out on whether his aggressive bargaining tactics have soured worker relations with the automakers for a long time.
The iShares MSCI USA ESG Select ETF is seeing unusually high volume in afternoon trading Thursday, with over 4.6 million shares traded versus three month average volume of about 343,000. Shares of SUSA were down about 0.6% on the day.
Wall Street's main indexes dropped on Thursday as megacap stocks remained under pressure, while investors assessed the ongoing quarterly earnings season and a mixed bag of data.
Ford autoworkers were set to head back to work after the United Auto Workers (UAW) union reached a tentative labor deal with the company late Wednesday.
Shares around the world fell on Thursday as U.S. Treasury yields lingered near 5%, U.S. economic growth exceeded expectations, and companies posted mixed results.
The S&P 500 and the Nasdaq fell in choppy trading on Thursday, as megacap stocks remained under pressure, while investors kept tabs on the raging quarterly earnings season and a mixed bag of data.
(RTTNews) - Oil and gas major BP plc. (BP) announced on Thursday that its EV charging business bp pulse will acquire charging hardware units from EV major Tesla (TSLA) for $100 million.
Wall Street's main indexes were poised to open lower on Thursday, as megacap stocks remained under pressure from elevated Treasury yields, while investors took stock of recent Big Tech earnings and a mixed batch of economic data.
Eli Lilly (NYSE: LLY) is the most valuable healthcare company in the world, with a market cap in excess of $550 billion. It's also a growing business and one that can become even more valuable in the future. While there is a sizable gap in value between it and electric vehicle (E
Despite some signs of slowdown in the economy, the biggest stories in the market still revolve around big tech earnings and artificial intelligence. Big 7 stocks stretch across technology, communications, and consumer discretionary: Microsoft [MSFT], Apple [AAPL], and Nvidia [NVDA] in technology; Meta Platforms [META] and Alphabet [GOOG] in communications; and Amazon [AMZN] and Tesla [...]
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