(Bloomberg) — Tesla Inc. revised its growth projections this week, as stated by a Morgan Stanley analyst on Friday, indicating that the electric vehicle industry should brace for impact.Thank you for reading this post, don't forget to subscribe!
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Adam Jonas, a long-time enthusiast of the EV titan, suggested that investors seriously ponder the broader consequences for the global electric vehicle industry after witnessing the company’s underwhelming third-quarter results and cautious earnings conference call. Jonas stated that demand for carmakers seems to be decelerating.
Jonas penned, “Tesla’s 3Q: A Pivotal Warning for the Electric Vehicle Industry?”
Following the closing of markets on Wednesday, Tesla released results that fell short of analysts’ projections for both adjusted earnings and revenue. The company’s decision to reduce car prices is only intensifying demand. CEO Elon Musk once again attributed this to increasing interest rates in the US, claiming that higher financing costs raise monthly payments and hinder car purchases. All in all, the company failed to meet future expectations, thus dampening the hopes of some investors who believed that the worst was over for the company.
Musk’s unsatisfactory comments led to a 9.3% plunge in Tesla shares on Thursday, marking the largest drop in three months. The stock continued to decline on Friday, falling 4.4% to $210.42 in New York.
Tesla currently leads the global electric vehicle market, and its cautious approach casts a shadow over the entire EV industry, Jonas asserted. According to an analysis conducted by Bloomberg New Energy Finance, other companies, whether fledgling startups or established automakers, still lag far behind Tesla in the race for electric vehicles.
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Detroit-based US automakers face higher costs due to their unionized labor force. Hence, if Tesla struggles to generate favorable profit margins on its vehicles, traditional automakers may encounter further difficulties. Additionally, the challenges Tesla is confronting could also impact EV suppliers.
“If Tesla encounters difficulties achieving a 5% operating profit margin for its EV products with US employees earning $45/hour, what is the outlook for EV margins for Detroit carmakers, whose EV employees may potentially earn close to $100/hour in profits?” Jonas queried. General Motors Co., Ford Motor Co., and Stellantis NV are all currently grappling with labor strikes as unions negotiate substantial wage hikes.
Nevertheless, Jonas maintained his buy-equivalent rating on Tesla, asserting that it is prudent for the company to exercise caution during a period fraught with elevated macroeconomic, consumer, and geopolitical risks.
“Although a reset may adversely impact shares in the short term, we believe that in the long run, this strategy may prove to be the most appropriate for the company and its stakeholders,” Jonas concluded.
-With assistance from Dana Hull.
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