In the fast-paced automotive industry, Tesla Inc. (TSLA, Financial) is a pioneer in electric vehicles. Although the company's stock has seen a significant recovery in 2023, it has not been immune to recent downward risks and financial turbulence. Tesla's commitment to spearheading advancements in EVs, autonomous driving and other futuristic technologies underscores its leadership.
However, several analyst downgrades have cast a shadow of concern and a trimming of price targets, with Deutsche Bank reducing its target from $300 to $285. These adjustments underscore the potential downside risks that the electric car manufacturer is currently facing despite the bank's long-term bullish stance.
Challenges and anticipations
The ever-changing financial climate introduces an additional layer of intricacy and challenges. High interest rates pose the threat of dampening consumer expenditure, which could potentially hinder the progress and adoption of EVs. There are also doubts regarding Tesla's ability to sustain its remarkable growth and manage the costs of raw materials for battery production.
Despite these challenges, Tesla's upcoming electric pick-up truck and a new affordable model platform for 2025 remain highly anticipated, promising to bolster its market position and fortify investor trust.
Even with immediate concerns, a reduction in analyst expectations and visible downward risks, Tesla's long-term strategy and vision stand resilient. The company's robust net cash position significantly mitigates the vulnerability to the rising debt issues facing other automakers, highlighting its financial stability in an unstable economic environment.
Concerns for Tesla's 2024 earnings
On Sept. 27, a note from Deutsche Bank raised concerns about Tesla's earnings for 2024. Despite maintaining a "long-term bullish" stance on the stock, analysts foresee a "meaningful downside risk" for the Wall Street consensus, given the possibility of restricted volume growth next year. Consequently, the bank lowered its price target from $300 to $285 a share.
However, Deutsche Bank remains optimistic about Tesla's position as a leader in the EV market, emphasizing potential competitive cost advantages over General Motors Co. (GM, Financial) and Ford Motor Co. (F, Financial) in the future.
A lot hinges on Tesla's progress with a next-generation platform for a more affordable model planned for 2025. If the timeline is met, analysts believe investors will overlook the projected soft 2024, viewing it as a transition year. Despite warning about possible third-quarter delivery and production shortfalls, Deutsche Bank maintains its belief in Tesla's continued leadership in electrification for years to come, backed by its next-gen platform.
Adjustments in delivery and production
Deutsche Bank also flagged the downside risks to expectations for 2024 on both growth and earnings front. Tesla's plans of not expanding output at its Austin, Texas and Berlin factories to 10,000 vehicles per week and the anticipation of a "positive halo effect" from a new electric pick-up truck in Texas in the fourth quarter signify key adjustments in delivery and production outlooks.
The bank now expects Tesla to announce guidance of approximately 2.1 million deliveries for next year, in contrast to the Wall Street consensus estimate of 2.3 million units.
Analysts' diverse views
Tesla's stock dipped 6.8% in September amidst the downgrades and estimate cuts. However, Battle Road Research analyst Ben Rose upgraded the stock, focusing on the long-term outlook and its sustained market leadership in EV manufacturing. Despite production downtime leading to a cut in delivery numbers by Deutsche Bank analyst Emmanuel Rosner, Rose emphasized Tesla's continuous market share dominance, the potential of full self-driving software and growth in energy storage sales.
Overvaluation concerns
Tesla's financial footprint casts a significant shadow on the vehicles and parts industry. It boasts a cash-to-debt ratio of 3.97, outpacing 79.51% of competitors, and a debt-to-equity ratio of 0.11, surpassing 82.65% of industry peers. These strong financial positions showcase Tesla's relative stability and sound financial health, elements crucial for driving continued growth and navigating economic upheavals.
Additionally, with a three-year revenue growth rate per share of 36.4%, the company outpaces 93.78% of other companies in the space, underlining its sustained and robust revenue generation capabilities. Further, Tesla's three-year Ebitda and free cash flow growth rates stand at 83.9 and 81.4, respectively. These figures place the company ahead of more than 97% and 94% of competitors in the industry, highlighting its proficient operational performance and cash-generating potential.
Further optimism brews with Tesla's anticipated future three to five-year earnings per share without NRI growth rate at 26% and total revenue growth rate at 23.77%, outshining 84.31% and 92.5% of industry peers.
Despitethe positive outlook, Tesla's overvaluation remains a cause for concern. The company's price-earnings ratio, at 71.76, ranks lower than 90.68% of its industry peers, and its forward price-earnings ratio of 55.88 stands even lower, besting only 1.73% of competitors. Despite Tesla's solid performance metrics, this evident overvaluation emphasizes a downward risk, urging potential investors to tread with care.
Final takeaway
While immediate challenges and delivery adjustments pose concerns, Tesla's long-term outlook remains promising for many analysts. The consensus about the company's continued leadership in the EV market, alongside its advancements in next-gen platforms and other technological facets, underscores the optimism despite near-term hurdles.
