2024.03.31 02:17
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A 29% drop in the first quarter, profit expectations still remain high, will the "short Tesla" trend continue?

As Tesla's first-quarter delivery volume is about to be announced, analysts have started to successively lower their delivery expectations. With the intensifying competition in the Chinese market, the ongoing "price war" related to it continues, making the first quarter potentially Tesla's "nightmare"

The market's enthusiasm for Tesla is gradually cooling down. In the first quarter, Tesla has frequently been targeted by Wall Street analysts for short selling. With a cumulative drop of nearly 13% in March, the first quarter saw a significant decline of over 29%, marking the third largest quarterly drop since its listing and making it the worst-performing component stock of the S&P 500 index.

Tesla is set to announce its first-quarter delivery data for 2024 next Monday, followed by its first-quarter earnings on April 17. However, just before the release of key data, several Wall Street analysts have lowered their expectations for its delivery data this week due to weak demand and intensified competition, further lowering their price targets.

According to the average forecast of 11 analysts compiled by FactSet, Tesla's first-quarter delivery volume is expected to be 423,000 vehicles, lower than the 484,000 vehicles delivered in the fourth quarter of 2023. Market expectations at the end of January were for first-quarter deliveries to reach 494,000 vehicles.

Wedbush analyst Dan Ives, who has a long-term positive outlook on Tesla, believes that Tesla is currently in a "tense period," and the first-quarter delivery volume may become a nightmare for Tesla due to weak demand in the Chinese market, leading him to lower the target price from $315 to $300.

Ives points out that Tesla's global sales growth is slowing down, and the "biggest problem for Tesla" is the intensifying competition in the Chinese market. The related "price war" continues, making this key market very challenging for Tesla.

Deutsche Bank analyst Emmanuel Rosner also lowered his delivery expectations for Tesla due to similar concerns, reducing the first-quarter delivery forecast from 427,000 vehicles to 414,000 vehicles. Rosner believes that Tesla's price reduction strategy in the Chinese and European markets may boost sales in the short term, but in the long run, it will continue to put pressure on profit margins and earnings.

Intensified Competition in China

In recent years, Tesla's delivery volume has been growing at a rate of at least about 50% annually, but it has slowed significantly since last year. The main factor behind this slowdown is the intensified competition from Chinese electric vehicle manufacturers, which has dampened demand for Tesla's electric cars.

BYD's fourth-quarter delivery volume exceeded Tesla's, making it the world's largest electric vehicle manufacturer: Tesla produced approximately 495,000 cars in the fourth quarter, with deliveries exceeding 484,000 vehicles. BYD delivered 526,000 pure electric vehicles in the fourth quarter, surpassing Tesla by over 40,000 vehicles. BYD's rise to the top is mainly due to its wider product line and lower prices in China.

On March 28, Xiaomi's SU7 was officially launched with a starting price of 215,900 yuan, boldly positioning itself against Tesla's Model 3.

Media analysis suggests that in the face of pressure from Chinese electric vehicle manufacturers, Tesla has responded by lowering prices, but sales remain sluggish According to data from the China Passenger Car Association, Tesla sold 71,447 vehicles in January, an 8% year-on-year increase but a 24% decrease from the previous month. In February, domestic retail sales data showed 30,141 vehicles sold, an 11.1% year-on-year decrease and a 24.4% month-on-month decline.

Morgan Stanley has lowered its forecast for Tesla's Q1 deliveries from 469,400 vehicles to 425,000 vehicles, and the full-year delivery expectation from 1.998 million vehicles to 1.954 million vehicles.

Citigroup also revised its forecast for Tesla's first-quarter delivery volume in its latest report, lowering it from the previous 473,000 vehicles to 429,000 vehicles, with a year-on-year growth of only 2%. It is expected that 160,000 vehicles will be delivered in the U.S. and 132,000 vehicles in China, while the European market will see 92,000 deliveries.

Nicholas Colas, co-founder of DataTrek Research, stated: "The delivery expectations have been significantly lowered, dampening investors' confidence in Tesla. Even if the data ends up slightly higher than expected, it is difficult to spin it positively. Stock valuations are often tied to a company's weakest link, and for Tesla, that link is the automotive business."

Furthermore, due to a ship attack in the Red Sea leading to a change in transportation routes and subsequent parts shortages, Tesla suspended most of its car production at its factory near Berlin at the end of January. Adding to the woes, Tesla's Gigafactory in southeastern Berlin was forced to halt production activities in early March after extreme environmentalists set fire to the factory, causing a power outage.

Multiple Investment Banks Lower Tesla's Price Targets

Throughout March, several investment banks have lowered Tesla's price targets, including Morgan Stanley, Deutsche Bank, Credit Suisse, UBS, and Goldman Sachs. Among them, UBS has the lowest target price at $120, implying a further decline of around 30%.

Analysts at UBS believe that Tesla's core issue lies in its once strong growth capability now fading. Despite multiple price cuts to stimulate demand, the effects have been minimal, with revenue and profit growth rates significantly slowing down while the valuation remains much higher than other large growth stocks.

Dan Ives stated that market expectations related to Tesla are unusually negative, and this time sounding the alarm for Musk and Tesla is reasonable, as growth has been sluggish and profit margins have been squeezed:

For Musk, this is a critical moment to steer Tesla through this turbulent period, otherwise darker days may lie ahead. How this period is navigated will determine Tesla's future.

Dan Ives still sees potential in Tesla's FSD technology, which is a key pillar of disruptive technology, but investors' patience is wearing thin, especially as Musk often talks about developing AI beyond Tesla