Deutsche Bank Trims Tesla Price Target, Cites Risks to the Electric Vehicle Maker's Prospects Going Forward
Deutsche Bank has expressed concerns about Tesla's future prospects, citing limited volume growth in the coming year and a potential downside risk to the company's 2024 consensus expectations. Analyst Emmanuel Rosner has reduced his price target on Tesla's stock by $15 to $285, indicating a potential 16.7% increase from Tuesday's closing price. Despite maintaining a buy rating, Rosner highlights the near-term risk stemming from weaker fundamentals leading into 2024, driven by a lower volume outlook than what the market currently believes.
Volume Growth and Pricing Pressure
Rosner points to muted volume growth expectations for the next year, with only 300,000 units projected, representing a 17% year-over-year increase. However, he suggests that there may be less pricing pressure and anticipates a moderate ~1% price decline year-over-year due to the higher Model 3 price mix, which is expected to begin in the fourth quarter of 2023 in China and potentially roll out to the U.S.
Lowered Revenue and Delivery Expectations
Despite Tesla's impressive stock performance, Rosner has lowered his third-quarter revenue forecast to $23.3 billion, down from $24.1 billion, citing lower volume expectations. He has also reduced delivery expectations to 440,000 units for the period, compared to the previous estimate of 455,000 units. These adjustments reflect factors such as downtime at Tesla plants during the summer, price cuts to Model Y cars in China, discounts on Model S/X, targeted inventory reductions, and limited positive offsets.
Impact of China-Made Model 3 Launch
Rosner highlights the impact of the recently launched China-made Model 3 on Tesla's deliveries for the third quarter. With older Model 3 vehicles in the region already experiencing a decline, he suggests that the newer model may have limited benefit during this period. Rosner believes that investors may not have fully appreciated the potential impact on deliveries when considering the company's commentary from the second-quarter earnings report.
Earnings Outlook and Production Expectations
Despite the concerns, Rosner has increased his earnings-per-share estimates for 2025, assuming that Tesla successfully launches its next-generation vehicle as planned in that year. Barclays has also lowered its third-quarter production and delivery expectations for Tesla, anticipating pressure on the numbers before a potential recovery in the final three months of 2023. Tesla is scheduled to report its earnings on October 18.
(Note: This report includes contributions from CNBC's Michael Bloom.)
Deutsche Bank's Tesla Price Target Trim: Implications for New Business Formation
Deutsche Bank's recent adjustment of Tesla's price target has sparked conversations about the potential risks facing the electric vehicle maker's future. Analyst Emmanuel Rosner cites concerns about limited volume growth and a potential downside risk to the company's 2024 consensus expectations as reasons for the $15 reduction in Tesla's stock price target.
Volume Growth and Market Expectations
For new businesses entering the electric vehicle market, these concerns highlight the importance of accurate volume growth projections. Rosner's projection of only a 17% year-over-year increase in Tesla's volume growth could serve as a cautionary tale for new businesses to manage their growth expectations realistically.
Revenue and Delivery Adjustments
Rosner's lowered revenue forecast and delivery expectations for Tesla underscore the potential challenges that new businesses may face in the electric vehicle sector. Factors such as downtime at plants, price cuts, inventory reductions, and limited positive offsets can significantly impact revenue and delivery performance.
Product Launch Impact
The impact of the China-made Model 3 launch on Tesla's third-quarter deliveries provides valuable insight for new businesses. The limited benefit of the new model during this period suggests that product launches may not always yield immediate positive results.
Long-Term Earnings Outlook
Despite the near-term concerns, Rosner's increased earnings-per-share estimates for 2025 indicate a positive long-term outlook for Tesla. This could serve as a reminder for new businesses that short-term challenges should not overshadow long-term potential.
In essence, Deutsche Bank's Tesla price target adjustment offers valuable lessons for new businesses in the electric vehicle sector. By understanding these market dynamics, new businesses can better navigate the challenges and opportunities in this rapidly evolving industry.