Tesla’s Q3 conference call was one for the ages. While the EV leader’s results were conclusively disappointing, the call itself featured ominous warnings from CEO Elon Musk on the state of the global economy, the higher interest rate environment and the difficult road ahead for the Cybertruck’s production.
Shares duly tanked as investors digested an uncertain future for the undisputed EV leader. In fact, Morgan Stanley analyst Adam Jonas makes the case that Tesla’s dire outlook could have massive ramifications for the wider industry.
“Beyond the scope of negative estimate revisions for Tesla following a disappointing 3Q result and one of the most cautious conference calls in years, we believe investors should seriously consider the implications for the broader global EV complex,” Jonas explained. “We see a warning from the ‘gold standard’ of EVs having a ripple effect across the industry. In our view, Tesla’s caution = caution for EVs broadly.”
There is no doubt demand is an issue but considering the fact Tesla is the industry leader, boasting almost a 20% share of the current global EV market and commanding more than a 50% share of the US EV market, that is indicative of a problem far bigger just affecting the appetite for Tesla’s vehicles.
“When the world’s leading EV company pours that much cold water on the outlook, its competitors and suppliers may wanna listen up,” adds Jonas. “If Tesla doesn’t grow profit in FY24, what does this mean for the EV efforts in Detroit, Wolfsburg and Nagoya?”
Tesla issued its warning at the same time as heated negotiations are taking place between the UAW and the Detroit-based OEMs. Among the many factors that the executive teams and boards of these American automakers are considering is whether their investments in EV expansion, which they have previously announced and continue to pursue, make economic sense. While Tesla is known for its industry-leading production scale, variety of models, and manufacturing efficiency and vehicle design, its profit margins currently lag significantly behind those of internal combustion engine (ICE) products.
As such, Jonas anticipates a bit of an about-face to take place. “We expect to see the Detroit OEMs bring greater attention to the attractiveness and profitability of their ICE portfolios while, at the margin, de-emphasizing their EV plans. This process has already begun,” he summed up.
Meanwhile, Jonas keeps an Overweight (i.e., Buy) rating on TSLA stock backed by a Street-high $380 price target, suggesting shares will move 73% higher in the year ahead. (To watch Jonas’ track record, click here)
Tesla regularly elicits a wide spectrum of views on Wall Street and that is the case right now. Based on a mix of 14 Buys and Holds, each, plus 5 Sells, the stock claims a Moderate Buy consensus rating. At $253.18, the average target makes room for 12-month returns of ~16%. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
