Source: Wall Street News

Market pair$Tesla (TSLA.US)$Enthusiasm is gradually cooling down. Tesla was frequently underwhelmed by Wall Street analysts in the first quarter. It had a cumulative decline of nearly 13% in March and plummeted more than 29% in the first quarter. It was the third biggest quarterly decline since listing, making it the worst performing constituent stock in the S&P 500 index.

Tesla will release delivery data for the first quarter of 2024 as early as next Monday, followed by the announcement of profit for the first quarter on April 17. Just before it released key data, several Wall Street analysts lowered their expectations for delivery data and further lowered their share price targets this week due to weak demand and increased competition.

According to the average forecast of 11 analysts compiled by FactSet, Tesla is expected to deliver 423,000 vehicles in the first quarter, down from 484,000 vehicles delivered in the fourth quarter of 2023. At the end of January, the market expects the delivery volume for the first quarter to reach 494,000 vehicles.

Wedbush analyst Dan Ives, who has been optimistic about Tesla for a long time, believes that Tesla is currently in a “tense period” and that delivery volume in the first quarter may become Tesla's nightmare due to weak demand in the Chinese market, lowering the target price from $315 to $300.

Ives pointed out that Tesla's global sales growth rate is slowing down, and “Tesla's biggest problem” is that competition in the Chinese market is intensifying, and the “price war” associated with it continues. This makes this key market very challenging for Tesla.

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

Competition in China intensifies

Over the past few years, Tesla's delivery volume has been growing at a rate of at least 50% per year, but it has clearly slowed since last year. The main factor behind this is the intensification of competition among Chinese electric vehicle manufacturers and the slowdown in demand for Tesla's electric vehicles.

BYD surpassed Tesla in the fourth quarter and became the world's largest electric vehicle manufacturer: Tesla produced about 495,000 cars in the fourth quarter, with deliveries exceeding 484,000 units; BYD delivered 526,000 pure electric vehicles in the fourth quarter, with more than 40,000 more units. The main reason behind BYD's rise to the summit was its wider product line and cheaper price in China.

On March 28, the Xiaomi SU7 was officially launched at a starting price of 215,900 yuan, making a high-profile benchmark against the Tesla Model 3.

According to media analysis, in the face of pressure from Chinese electric vehicle manufacturers, Tesla has cut prices, but sales are still sluggish.

According to data from the China Passenger Federation, Tesla sold 71,447 vehicles in January, up 8% year on year and down 24% month on month. In February, the domestic retail sales data was 30,141 vehicles, down 11.1% year on year and 24.4% month on month.

Morgan Stanley lowered the forecast value of Tesla Q1 deliveries from 469,400 units to 425,000 units, and the annual delivery forecast was reduced from 199,800 units to 1.954 million units.

Citi also lowered its first-quarter delivery forecast for Tesla in its latest report, from 473,000 vehicles previously to 429,000 units, an increase of only 2% over the previous year. Among them, the US and Chinese markets are expected to deliver 160,000 and 132,000 vehicles each, while the European market is expected to deliver 92,000 vehicles.

Nicholas Colas, co-founder of DataTrek Research, said, “Delivery expectations have been drastically lowered, killing investors' confidence in Tesla. Even if that figure ended up being slightly higher than expected, it is difficult to interpret it positively. Because stock price valuations are often related to a company's weakest link. For Tesla, this part is the automotive business.”

Furthermore, Tesla suspended most automobile production at its factory near Berlin at the end of January due to changes in transportation routes due to attacks on Red Sea vessels, which in turn caused a shortage of spare parts. The disaster is not alone. Tesla's gigafactory in southeastern Berlin, Germany, lost power in early March due to extreme environmentalists setting fire to the factory, and production activities had to be stopped.

A number of investment banks lowered Tesla's target price

Throughout March, several investment banks have lowered Tesla's target price, including Morgan Stanley, Deutsche Bank, Wells Fargo, UBS, and Goldman Sachs. Among them, Wells Fargo's target price is as low as $120, which means it will drop another 30%.

Wells Fargo analysts believe that the core problem facing Tesla is that its once strong growth capacity is no longer there. Many price cuts to stimulate demand have had little effect. Revenue and profit growth have clearly slowed, but the valuation is still significantly higher than that of other large growth stocks.

Dan Ives said that market expectations related to Tesla are extremely negative, and it makes sense to sound the alarm for Musk and Tesla this time, because growth has been slow and profit margins are being squeezed:

For Musk, this is a critical moment. For Tesla to get through this turbulent period, it may usher in darker days. How to get through this period will determine Tesla's future.

Dan Ives said he is still optimistic about Tesla's FSD technology, which is a key pillar of disruptive technology, but investors' patience is running out, and Musk often talks about developing AI outside of Tesla.

editor/tolk