Tesla (NADSAQ:TSLA) is gearing up for its highly anticipated ‘We, Robot’ event on October 10. While excitement builds for the event, the EV giant recently disappointed investors with its Q3 delivery numbers, reporting 462,890 deliveries, slightly below the consensus estimate of 463,897 units.
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Rather ominously, J.P. Morgan analyst Ryan Brinkman thinks that miss could point toward an unprecedented development for the EV leader.
“We note that the continued softer trend now appears to position Tesla to potentially not grow full year unit volumes for the first time in its history, which we estimate could cause incrementally more investors to reconsider the company’s growth stock multiple,” Brinkman opined.
So, has the time of reckoning finally come for Tesla’s famously lofty valuation? Maybe. As pointed out by Brinkman, Tesla’s lack of volume unit growth has been evident in both Q1 and Q2, but investors haven’t actually minded that much, and the stock has been fairly adept at shaking off any negative sentiment. For example, it is up by 70% from the 52-week low hit in April, while the S&P 500 has only gained 14% since.
Moreover, against a backdrop of crumbling expectations for almost all performance metrics (unit volumes, revenue, gross margin, EBIT, & FCF), TSLA shares have remained flat to slightly higher over the past two years.
For instance, back on October 3, 2022, the consensus expectations for 3Q24 deliveries stood at 651,000, way higher than the ~463,000 the company just delivered. That’s a 29% miss, so how come the stock is higher now? “Is it because the company has traded sales for profits?” asks the analyst. “Actually,” he goes on to answer, “delivery expectations are the one metric that has deteriorated the least over the past two years, as other income statement and balance sheet metrics were sacrificed to support even this lower level of deliveries.”
On that same day, for instance, the expectation for 3Q24 EBIT stood at $7.9 billion but is currently at only $2 billion. Meanwhile, the current full year 2024 EBIT forecast of $7.3 billion is now 74% below the $28 billion expected two years ago.
“Given these observations,” Brinkman went on to say, “we are not confident that the reporting of a full year deliveries decline will comprise any sort of ‘ah ha’ moment for the stock, but rather another contributing factor to cause more investors to pay more attention to the growing gap between fundamentals and valuation.”
Accordingly, Brinkman rates TSLA stock as Underperform (i.e., Sell) along with a $130 price target. That figure implies shares are set to shed 48% of their value over the coming months. (To watch Brinkman’s track record, click here)
The Street’s average price target is a bit higher but at $210.91, it still factors in a 12-month drop of ~16%. All in, the consensus view is that this stock is a Hold (i.e. Neutral), based on a mix of 16 Holds, 12 Buys and 7 Sells. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
