Oct. 04, 2023 9:24 AM ET Tesla, Inc. (TSLA)
- We are upgrading Tesla, Inc. to a hold in spite of our cautious view of the auto industry in 2H23.
- Q3 2023 deliveries declined 7% QoQ to 435,059 and fell below Wall Street estimates at 461,640, primarily due to factory shutdowns for upgrades.
- We think the automotive market will experience headwinds from the high interest rate environment, but expect Tesla to fare better than the market in Q4 2023 and 1H24 with recent upgrades.
- We fully expect Tesla to remain aggressive with its pricing strategy but expect the company to hold its margins through 2024 due to the planned cost reductions.
- We now see a more balanced risk-reward profile for Tesla.
- We are Tech Stock Pros, veterans in the technology and investment spaces. We run the Investing Group Tech Contrarians
where we provide institutional-level company research to individual investors.This article discusses an upgrade of Tesla, Inc. (TSLA) to a "hold" rating from a "sell" rating, despite cautious views on the auto industry in the second half of 2023. Here are the key points from the article:
- Q3 2023 Deliveries: Tesla's Q3 2023 deliveries declined 7% quarter-over-quarter to 435,059 vehicles, falling below Wall Street estimates of 461,640. The decline was primarily due to factory shutdowns for upgrades.
- Cautious Auto Industry Outlook: The article expresses caution about the auto industry in the second half of 2023, citing headwinds from a high-interest rate environment. However, it expects Tesla to outperform the market in Q4 2023 and the first half of 2024, thanks to recent upgrades.
- Price Cut Strategy: The article acknowledges concerns about Tesla's aggressive pricing strategy in a higher interest rate environment and weaker demand. It anticipates that Tesla will continue with this strategy but is now less concerned about margin contraction due to planned cost reductions in 2024.
- Upgrades on Models 3 and Y: The upgrades on Tesla's Models 3 and Y are expected to boost deliveries in the last quarter of FY23, positioning the company to compete more effectively with other electric vehicle manufacturers.
- Valuation: Tesla's stock is described as expensive, trading at a P/E ratio of 74.9x based on the estimated 2023 earnings per share (EPS) of $3.36. The stock also has an EV/C2023 Sales ratio of 7.8x, higher than the peer group average of 3.6x. The article suggests that investors should stay on the sidelines for now.
- Wall Street Analysts: Wall Street analysts have mixed opinions on Tesla, with 18 buy ratings, 20 hold ratings, and some sell ratings. The median sell-side price target is $265, while the mean target is $237, indicating a potential -6% to 5% upside from the current stock price of $252.
- Conclusion: The article upgrades Tesla to a "hold" rating, expecting the company to perform better than the broader auto industry in the near term. It sees a more favorable risk-reward profile for Tesla in 2024 but does not recommend entering the stock at current levels.
Overall, the article suggests that while Tesla faces challenges, it is positioned to weather the headwinds in the auto industry and could benefit from its recent vehicle upgrades and cost reduction plans in the future. However, the stock's current valuation is considered expensive, leading to a "hold" rating rather than a stronger recommendation.
