On Monday, Tesla’s stock price plummeted when Goldman Sachs lowered its earnings forecast for the electric vehicle giant. The downgrading occurred while a pricing war in the EV market was heating up, in part due to Tesla’s own aggressive markdowns. CEO Elon Musk also took to Twitter to shoot down rumors of a new plant in Saudi Arabia.
The stock price dropped 3.3% on the day, ending at $265.28, extending 2023’s erratic beginning.
Mark Delaney, an analyst at Goldman, has reduced his earnings forecasts for both 2023 and 2024, citing the likelihood of more margin compression due to falling average selling prices. Delaney has lowered his earnings per share forecast for Tesla this year from $3.50 to $3.40. His earnings per share prediction for 2024 went down from $4.75 to $4.65.
Even with the revisions, the revised forecasts fall short of the consensus estimate of $3.36 per share in profits for 2023 on Wall Street.
Delaney wrote in a client note that the company’s long-term growth potential and dominating position in the electric vehicle market are offsetting the near-term headwinds to profitability. Therefore, he kept his Neutral rating and $275 price target on the stock.
Tesla has already reduced prices in the United States and China many times in early 2023, so this drop follows on their heels. The moves set off a pricing war in the electric vehicle sector, with established players slashing their prices to stay relevant. However, the decrease in price has naturally reduced Tesla’s once-impressive margins, bringing them down to levels below the company’s declared target.
If consumers’ disposable incomes continue to be squeezed by high inflation and rising interest rates, Delaney predicts that additional discounting may be necessary to prop up demand in 2024. The potential impact on earnings from price cuts has been a source of concern for other analysts.
Meanwhile, Elon Musk denied on Twitter that Tesla has begun talks with Saudi Arabia about establishing a manufacturing facility in the Middle Eastern country. The CEO of the company tweeted tersely that the piece in the Wall Street Journal was “utterly false.”
According to the WSJ, current negotiations are at an early stage and might easily fail. However, it stated that Tesla is considering opening a manufacturing in the Middle Eastern country as part of its effort to diversify away from oil. One of Tesla’s biggest institutional investors is Saudi Arabia’s national wealth fund.
Tesla stock has exhibited signs of stabilizing and seeking a rebound in recent weeks, after a severe 2022 selloff. On September 11th, after Morgan Stanley significantly increased its price objective to $400 from $250, shares soared 10%. Company officials expressed excitement about the commercial possibilities of Tesla’s Dojo artificial intelligence supercomputer.
MarketSmith’s price chart indicates that Tesla has established a new base around $299.29, making this price point a good place to buy. After last week’s upswing, Monday’s drop, which found support near the 10-day moving average, could be a healthy correction.
In late August and early September, the stock first encountered resistance near its 50-day line. The 11 September breakout, however, was important in lifting shares above their 50-day and 200-day moving averages. The peak of $261.18 reached by Tesla on August 31 also served as an early entry point for additional risk-taking investors.
Tesla’s continued elite ratings reflect the company’s disruptive dominance in the EV market, notwithstanding recent turmoil. It received a 98 out of a possible 99 on the Composite scale. The Composite Rating is a single number that incorporates both technical and fundamental parameters.
Even more impressive is Tesla’s 92 Relative Strength Rating, which indicates that the company has outperformed 92% of all equities over the past year. With an EPS score of 93 out of 99, it has shown consistent profit expansion over time.
Some analysts and investors find the stock extremely enticing at present prices because Tesla will be trading below its key moving averages for much of 2022. In the coming years, the corporation is expected to capture a larger part of the market for electric vehicles.
Tesla’s solar and energy storage business, its autonomous driving software, and its upcoming ventures into areas like humanoid robotics all present enormous prospects beyond just selling EVs. Shares of Tesla have the potential to greatly reward patient investors if the company can maintain good execution and fend off a growing crop of capable competitors.
However, dangers also abound. Despite Musk’s grand aspirations, the road to fully autonomous vehicles is still unclear. The auto industry is experiencing intense competition from the likes of Ford, General Motors, BMW, Mercedes, and others. And in a worsening economic climate, Tesla’s premium pricing model could come under strain.
Tesla is still one of the most controversial stocks despite its stratospheric growth over the previous decade. Tesla’s capacity to rekindle growth and profitability is crucial if the company is to recover from the precipitous drop in its stock price.