Tesla (TSLA) persists with its strategy of implementing vehicle discounts and reducing prices early in 2024, aiming to stimulate demand in the face of market challenges. The recent round of price reductions in Europe on Tuesday evening draws attention to Tesla’s profit margins and potential struggles in achieving profitability in 2024, especially with fourth-quarter and full-year earnings on the horizon. Consequently, Tesla’s stock witnessed a decline on Wednesday.
Throughout January, Tesla’s stock has experienced a decrease of over 13%, falling below critical support levels. Analysts closely monitor updates on auto gross profit margins, excluding regulatory credits, and assess whether vehicle pricing has stabilized.
Despite the challenging market conditions, Tesla has persisted in lowering prices in 2024. In January, the company reduced prices for China-based vehicles, including the Model 3 and two Model Y variants. Additionally, on Tuesday, Tesla slashed Model Y prices in several European countries. Notably, these European price cuts coincide with Tesla Berlin’s decision to halt production for two weeks starting January 29.
On January 17, Gary Black, the managing partner of the Future Fund, revised his 2024 earnings estimates for Tesla to $3.75 per share, down from the previous estimate of $3.90 per share. Black expressed concern that Tesla’s strategy of simultaneously reducing configurator prices and offering inventory discounts might lead customers to anticipate future deals.
Despite the price cuts, Tesla stock observed a 2% decline to $215.55 on Wednesday, following Tuesday’s 0.5% gain to $219.91. The stock remains below its moving averages after four consecutive weeks of decline.
Tesla’s approach of aggressive price cuts persisted in 2023 to sustain sales momentum, resulting in a decline in auto gross margins from the peak of 30% in Q4 2021 to below 20%. Analysts who anticipated the end of Tesla’s price cuts in the latter half of 2023 are now focusing on vehicle pricing and margins for 2024.
With Tesla set to report Q4 earnings and revenue next week, analysts are particularly interested in the company’s outlook for vehicle pricing and margins in the coming year. Bernstein analyst Toni Sacconaghi, in early January, emphasized the importance of auto gross profit margins in Q4 earnings, anticipating a drop due to price cuts in September and October.
Barclays analyst Dan Levy adjusted the firm’s price target on Tesla stock to $250, down from $260, maintaining an equal weight rating. Levy highlighted that Tesla may face volume pressure in 2024, marking the first time in the company’s history where demand could be a more significant factor than production capacity. He predicted Tesla delivering 1.97 million units in 2024.
Tesla’s full-year and fourth-quarter earnings and revenue report is scheduled for January 24, with Wall Street forecasting a 39% decline in EPS to 73 cents and a 5% increase in revenue to $25.61 billion for Q4. Analysts expect 17.1% auto gross profit margins, excluding regulatory credits. Looking ahead to 2024, Wall Street anticipates earnings below 2022 levels, with EPS projected at $3.72 and revenue at $117.03 billion. The 2024 profit forecast is down 34% compared to January 2023 estimates.
Despite a robust performance in 2023, with Tesla doubling in value, the stock has faced challenges in January, retreating more than 11%. Currently, Tesla stock is in a double-bottom base with a 278.98 buy point, and analysts are closely monitoring its performance and future strategic moves.
