Tesla facing a 'significant demand problem', 2023/24 numbers 'could materially reset'

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Tesla facing a 'significant demand problem', 2023/24 numbers 'could materially reset' - analysts

Published Jan 03, 2023 07:25

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Tesla facing a 'significant demand problem', 2023/24 numbers 'could materially reset' - analysts

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By Senad Karaahmetovic

Tesla (NASDAQ:TSLA) analysts continue to discuss the company's Q4 deliveries report released yesterday. Shares trade softer in pre-market Tuesday after the company missed the average analyst estimates.

Several sell-side brokers, including JPMorgan, Truist, and Goldman Sachs, cut their price targets on Tesla stock to reflect a softer Q4 deliveries report.

JPMorgan analysts, in particular, reiterated an Underperform rating on Tesla stock as they believe any future material deliveries miss "could be particularly injurious to long-term investor expectations" as the electric vehicle (EV) maker likely won't have a supply problem in 2023.

Similarly, Bernstein analysts reiterated an Underperform rating on shares despite a more balanced valuation at current levels. Tesla stock closed 65% lower in 2022.

They believe the EV maker is "facing a significant demand problem."

"We believe that Tesla is facing a significant demand problem and that book to bill in Q4 was likely less than 0.65x, despite significant price cuts. Looked at another way, Tesla's annual order run rate in Q4 including significant discounting was only ~1M units, and the company's target is to sell close to 2M units in 2023, with no new models."

"We expect demand challenges to persist in 2023, particularly since *NO* Tesla models appear to currently qualify for any IRA rebates except the 7-seat Model Y (which is a $3000 option). We believe Tesla will need to either reduce its growth targets (and run its factories below capacity) or sustain and potentially increase recent price cuts globally, pressuring margins. We see demand problems remaining until Tesla is able to introduce a lower priced offering in volume, which may only be in 2025."

Moreover, they see Q4 consensus estimates for auto gross margins as "too high."

"We estimate that price cuts in the quarter negatively impacted Tesla's auto ASPs globally by roughly 3% or $1600+ per car. All else equal, this points to a nearly 250 bps decrease in auto gross margins. We suspect the net impact will be lower, but believe that consensus estimates for auto GMs ex-credits to increase 80 bps sequentially (to 27.6%) in Q4 are too aggressive," the analysts added.

Tesla stock closed at $123.18 on Friday.

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