Tesla (TSLA) – Get Free Report shares edged lower in pre-market trading following a pair of price target cuts from analysts on Wall Street ahead of the clean-energy carmaker’s third quarter earnings next week.
UBS analyst Joseph Spak lowered his Tesla price target by $24, to $266 per share – less than a month after raising it –while Jefferies analyst Philippe Houchois clipped $15 from his price target, taking it to $250 per share, following weaker-than-expected September sales in China heading into the group’s third quarter earnings update.
Houchois also cited eroding profit margins and weak fundamentals that “raise questions whether Tesla’s earlier profit edge was structural or a timing difference”, adding that some of company’s other initiatives, including the leasing of full-self driving technology, aren’t ready to offset a softness in the broader business.
China’s Passenger Car Association said Sunday that Tesla sold just over 74,000 cars in the world’s biggest market last month, an 11% slide compared to the same month last year and the 84,159 tally recorded in August.
The slowing sales will test Tesla’s 2023 strategy, which was outlined earlier this year by CEO Elon Musk, of focusing on market share growth of profits.
As part of that aim, Tesla has been aggressively cutting the price of its flagship Model 3 sedan and Model Y SUV in key markets around the world, including the U.S. and China, in order to entice new buyers and fend-off increasing competition in the EV space.
Houchois at Jefferies also cited eroding profit margins and weak fundamentals that “raise questions whether Tesla’s earlier profit edge was structural or a timing difference”, adding that some of company’s other initiatives, including the leasing of full-self driving technology, aren’t ready to offset a softness in the broader business.
Tesla shares were marked 0.8% lower in pre-market trading to indicate an opening bell price of $258.45 each, a move that would still leave the stock up more than 40% over the past six months.
Earlier this month, Tesla unveiled plans to cut the cost of its Model Y SUV, as well as its Model 3 sedan by as much as 4.2% for U.S. customers and has slashed the cost of its flagship Model 3 by around 17% since the start of the year, with a steeper 26% reduction in costs for the Model Y.
Tesla will publish its third quarter earnings after the close of trading on October 18, with analysts looking for its overall bottom line to fall nearly 30% from last year, to 74 cents per share, even as revenues rise 12% to around $24.16 billion.
The difference is likely to be reflected in the group’s closely-track automotive margins, a key profit metric, which have been narrowing sharply over the past twelve months following Tesla’s price cut strategy.
The cuts have taken their toll on Tesla’s profit margins, however, which were pegged at 18.7% for the three months ending in June, down from the year-earlier tally of 22.4%.
Demand has also been questioned, particularly in China, Tesla’s biggest market, following weaker-than-expected third quarter deliveries of 435,059 new cars over the three months ended in September. Analysts’ forecasts for deliveries ranged from 420,000 to around 470,000 with Refinitiv pegging the March quarter target at 459,000.
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