Elon Musk, CEO of SpaceX and Tesla and proprietor of X, formerly recognized as Twitter.Thank you for reading this post, don't forget to subscribe!
Gonzalo Fuentes | reuters
Over the past few days, Tesla shares experienced a drop of over 15%, closing at $211.99 subsequent to CEO Elon Musk’s expression of dissatisfaction regarding macroeconomic concerns during a third-quarter earnings call on Wednesday.
This week has been the most unfavorable for Tesla stock this year, despite the fact that the electric automaker’s shares have still risen by 96% year-to-date.
For the period ending September 30, 2023, Tesla announced a revenue of $23.35 billion and a profit of $1.85 billion, reflecting a decline compared to the previous quarter. Profit was also lower compared to the same quarter last year.
While discussing Q3 results, CEO Elon Musk, who devotes his time to Tesla, the social network economy, emphasized that cost reduction and price cuts will be crucial for Tesla in the upcoming quarters.
Musk disappointed shareholders by not providing details about the much-delayed Cybertruck and the company’s autonomous vehicle technology, known as “robotaxis,” which have been in development for years despite promises. The company is already trailing behind robotaxi developers like Cruise and Waymo in the US and ride-hailing giant Didi in China.
In relation to the company’s highly unconventional pickup truck, Musk even remarked during the Q3 call, “We have put ourselves in a difficult position with the Cybertruck”. He also mentioned that he wished to manage expectations for the vehicle, stating that although it is a “great product,” Tesla anticipates that it will require a year to 18 months for the Cybertruck to become a “positive cash flow contributor.” It will take time.
Musk claimed, “Demand is extraordinary. We have more than 1 million people who have reserved the car, so it is not a matter of demand.” He added, “But we need to manufacture it and price it in a manner that people can afford, which are extremely challenging aspects.”
Tesla is preparing an event on November 30 to officially introduce the Cybertruck; however, the final specifications and price of the truck have not been revealed yet. It remains unclear how many of those who have paid a $100 refundable reservation fee for the Cybertruck will ultimately follow through with the purchase.
During the question-and-answer portion of the earnings call with analysts, Musk repeatedly addressed Tesla’s efforts to internally reduce costs and the cost of its electric vehicles for customers. He stated, “I’m concerned about the high interest rate environment that we are currently in.” In reference to car buyers, he expressed, “If interest rates remain high or become even higher, it becomes much more challenging for people to afford to buy a car.”
Tesla’s new CFO, Vaibhav Taneja, reiterated Musk’s concerns and priorities on the call, stating that “Reducing the cost of our vehicles is our top priority.” He added, “We have attempted to compensate for such adjustments by intensifying our focus on cost reduction. However, there is an inherent delay in cost cutting, which consequently impacts margins.”
During the call, Musk made several optimistic claims, including assuring investors that Tesla will continue to “significantly invest in AI development,” a technology that he described as a “game changer” and one that gives Tesla the capability to develop the most valuable “large-scale, fully autonomous cars and fully autonomous humanoid robots” in the world.
Nevertheless, the market did not respond as it has in the past to long-term vision statements from renowned CEOs. As reported by CNBC Pro, even some analysts who are typically bullish on Tesla issued cautious notes following the company’s third-quarter results.
For instance, in a note on Wednesday, Wells Fargo analyst Colin Langan stated, “No more optimistic outlook.” Similarly, Morgan Stanley’s Adam Jonas lowered his price target to $380 from $400. Nonetheless, their note following the Q3 Tesla call still implies an upside of over 56%.
Jonas questioned, “How can we defend a ‘growth’ stock that is poised to enter its second consecutive year of earnings decline?” He later responded, “We believe it is also important and appropriate to consider the long-term potential of the products and services the company is commercializing.”
Bernstein’s Tony Sacconaghi, who is generally more skeptical regarding Tesla’s hype, maintained an Underperform rating on the EV manufacturer with a $150 price target on shares, indicating a downside of 38% from Wednesday’s closing price. In a note on Thursday, the analyst asked, “5% Auto Revenue Growth, Declining Margins and Trading at 200x FCF – Is the Story Broken?”.
Some long-term Tesla believers, including Jonas, viewed the company’s Q3 results as a warning sign indicating a more challenging outlook for EVs in general. Following Tesla’s cautious third-quarter call, shares of Chinese EV makers and other automakers also experienced declines.