Key points
- Tesla struggled in the first quarter and doesn’t expect improvements until it launches new products next year.
- The long-awaited Model 2 is back on the scene and could arrive as early as early 2025. Fingers crossed.
- Analyst reactions are mixed, but the net result is a downward move in the consensus price target for this Hold-rated stock.
- 5 stocks we like more than Tesla
Tesla NASDAQ:TSLA Stocks rose more than 10% after first-quarter earnings were released and may rise, but investors shouldn’t expect a sustained rally; they should expect only volatility. The news driving the market is good but so futuristic that it will not positively influence operations for at least twelve months. It is nothing more than a relief demonstration.
Among the drivers, no pun intended, are plans to build a fleet of robotaxis, the use of artificial intelligence and cheaper models. Between then and now, the company faces many obstacles, including a tepid electric vehicle market, stiff competition, increasingly tight margins and negative cash flow.
The analysts’ reaction is in line with the volatility outlook. Analyst activity is lively and mixed, but the result is a headwind for stock prices. More and more analysts are lowering their price targets rather than raising them, and more than one update is needed to alter the consensus rating from Hold to Reduce. The consensus target implies a 30% upside to the pre-release price action, but it is falling rapidly and is a cap on any rally that could form. The bottom line is that Tesla is still a trader’s stock and will likely experience wild swings within its trading range over the next few quarters.
Tesla had tough times in the first quarter
(As of 04/24/2024 ET)
- 52 week interval
- $138.80
▼
$299.29
- P/E ratio
- 37.62
- Price target
- $194.33
Tesla is in no danger of implosion, but its first-quarter results and outlook for the year suggest the company’s troubles are yet to end. First-quarter revenue fell 8.5%, the sharpest decline in more than a decade, to $21.31 billion due to weak demand growth, weak deliveries and the impact of price and mix . The company has issued numerous price cuts in most markets over the past twelve months, impacting its bottom line and bottom line. The company has been issuing new price cuts since the end of the first quarter, so they will continue to impact throughout the year.
The impact of lower prices was felt worse on profits. The company’s gross profit fell 18% due to a 200 basis point contraction in margin compounded by higher costs. Operating margin decreased 592 basis points: profit was 56% and adjusted earnings were 47%. Revenue and earnings were worse than expected, with revenue 415 basis points below the consensus reported by Marketbeat.com and earnings 1,000 below the consensus.
The guidance is optimistic, but the optimism is offset by the continued expectation of weakness this year. In the company’s words, “In 2024, our vehicle volume growth rate may be significantly lower than the growth rate achieved in 2023, as our teams work on the launch of the next generation vehicle and other products.” We hope that these products will arrive on the market in a reasonable time frame without unexpected costs. Tesla is more than a car company; an ecosystem is gaining traction, but it takes cars to make it work.
Costs are also an issue. The company is fully committed to the next phase of growth, which depends on artificial intelligence, autonomy and the long-awaited Model 2. First-quarter FCF hit a long-term low of -$2.53 billion , with consequent cash withdrawal on the sheet balance. The company is well capitalized but will burn through cash this year.
Tesla Rebounds: Significant Resistance Ahead
Price action in Tesla has seen a solid recovery following the report and could continue to move higher. The caveat is that this market is still below a critical resistance point that could limit gains. That point is near $180 and the lows set in 2021. The $180 level has been a trigger point for buyers ever since, and perhaps still.
However, if this market fails to break above $180 and hold there, the odds of a new low would increase. In this scenario, Tesla shares will confirm resistance at a critical level and could fall to $115 before reaching solid support. Even if the TSLA market can break above $180, it will not be out of the weeds. The long-term 150 day EMA and the long-term 150 week EMA are located just above and could also provide significant resistance to the price rise.
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