The bears are still here! This Wall Street investment bank: Tesla is the best short-selling target for 2024.

Tesla, which has been "preheating for many years," recently saw its stock price rise for 4 consecutive days due to deliveries, with a cumulative increase of 2.1% this week. However, Bernstein analysts once again warned the market about declining sales and worrying profits. They believe that Tesla is the best short-selling target for 2024, with a "hold" rating and a target price of $150, a 6.2% decrease from yesterday's closing price.

Toni Sacconaghi, an analyst at the American investment bank Bernstein, wrote in a recent research report to clients that in order to boost sales in the fiscal year 2024, Tesla will have to continue to lower prices and promote sales, which will "further reduce profit margins and disappoint sales volume." Sacconaghi explained:

In order to increase delivery volume by an additional 500,000 vehicles, Tesla has to lower prices by 16%, which will result in a 7.5% decrease in overall operating profit margin. It is currently unclear whether Tesla will further reduce prices to stimulate demand without affecting the company's negative free cash flow.

However, we believe that Tesla's delivery volume next year may be lower than market expectations and face lower profit margins.

Sacconaghi predicts that Tesla's delivery volume in 2024 will be 2.15 million vehicles, with earnings per share of $2.59, far below market expectations. The market generally believes that Tesla's delivery volume in 2024 will be 2.3 million vehicles, with earnings per share of $3.30.

Sacconaghi bluntly stated that there is a disconnect between Tesla's financial performance in the 2023 fiscal year and its stock price. The stock price has been supported by investors' growth expectations. However, in 2024, the slowdown in Tesla's sales and lower-than-expected profit margins will affect the market's view of Tesla's price-earnings ratio:

Investors may ask, why 2024? What is the difference between then and now? Currently, Tesla's valuation is still supported by the market's optimism about its growth prospects, which means that investors remain optimistic about Tesla's future profit potential.

However, in 2024 and 2025, Tesla's delivery volume and revenue will experience a significant decline, and investors' optimism will gradually disappear. The disappearance of the market's "growth narrative" may affect the stock's price-earnings ratio (currently about 75 times the 2023 earnings, much higher than the high-profit growth stocks in the same industry).

Does Tesla need to continue lowering prices and promoting sales?

The financial report for the third quarter of this year showed that Tesla's revenue increased by 9% year-on-year to $23.4 billion. However, Tesla's operating income, net profit, and operating profit margin all experienced significant declines. Tesla stated that the decline in net profit was due to underutilization of new factories, increased operating expenses due to the upcoming launch of the electric pickup truck Tesla, and expenditures on artificial intelligence and other projects. According to a previous analysis by Wall Street News, Tesla's price war this year has led to a new low in its gross margin, reaching only 17.9%, a decrease of 7.2 percentage points compared to the same period last year, which was 25.1%. However, the price war did not boost Tesla's delivery volume. In the third quarter, Tesla's global new car deliveries reached approximately 435,100 units, a 6% decrease from the second quarter, ending the five consecutive quarters of sales growth.

In the third quarter of this year, Tesla's price reduction strategy has greatly weakened the effect of promoting sales. Even with another round of price cuts in August, the performance of sales and profits remained poor.

It is certain that the strategy of price reduction to maintain sales volume is difficult to single-handedly drive Tesla's sales growth. The follow-up will depend on the impact of the new version of Model 3 on the market and whether Tesla, which has been eagerly awaited by the market, can successfully take over the position of the sales leader and bring Tesla back on track.

However, Sacconaghi believes that Tesla has a demand problem and will drag down its stock price before 2024. They believe that Wall Street's sales expectations for this electric vehicle company in 2024 are "too high".

Deutsche Bank analyst Emmanuel Rosner believes that due to Tesla's sales prospects in 2024 being much lower than market expectations, the company's profit expectations have significant downside risks. Rosner predicts that Tesla's deliveries next year will reach around 2.1 million units, which is lower than the consensus of 2.3 million units. However, he believes that because the company is no longer trying to push for such high sales volumes, the pricing pressure next year may be alleviated.