After ending 2023 with gains of roughly 100%, Tesla (NASDAQ:TSLA) stock hasn’t had a nearly positive performance so far this year. Alongside Apple (NASDAQ:AAPL), the electric vehicle (EV) manufacturer is one of the very few underperformers among Big Tech stocks. Other tech giants, particularly Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META), continue to thrive on the booming artificial intelligence (AI) revolution.
Against this backdrop, analysts on Wall Street released a fresh round of warnings as they await Tesla’s Q1 delivery report. Tesla stock fell around 1% in early New York trading on Wednesday.
Tesla stock weakness
The decline in Tesla stock prices can be attributed to several factors, with investor concerns over shrinking profit margins and reduced consumer interest in EVs standing out.
High interest rates have made purchasing EVs, along with other vehicles, significantly more expensive than they were a few years back.
In response, Tesla took the step of lowering prices across its range of models last year to sustain demand. However, these price reductions have since eaten into the automaker’s profitability.
Specifically, Tesla's gross profit margin has shrunk to 17% from nearly 30% in 2021.
Similarly, the company’s operating margin – a key metric watched by analysts and investors – was reported at 8.2% in the fiscal Q4 2023, half of the 16% reported in the year-ago period, though slightly higher than 7.6% in the prior quarter.
Tesla’s automotive revenue grew by just 1% year-over-year in the quarter.
Q1 deliveries likely a miss
Adding to Tesla’s stock woes, the carmaker faced further challenges with recent production cuts at its Shanghai plant due to declining sales and growing competition in China, leading to a reduced workweek for employees from 6 1/2 to five days, Bloomberg News reported.
Despite a 17% increase in China's passenger vehicle sales and a 37.5% rise in new-energy vehicle sales in the early part of the year, Tesla's deliveries fell.
For the first two months of 2024, its vehicle deliveries dropped by 6% year-on-year, with a total of 131,812 vehicles, as per data from China’s Passenger Car Association.
To reflect these recent data points, analysts at Citi Research lowered estimates ahead of Tesla’s Q1 delivery report. The Wall Street giant now expects the company to deliver 429,900, down from the previous forecast of 473,300.
“As we noted a few weeks ago, the Q1 setup looks tough on aggressive consensus estimates. In recent weeks, we’ve seen consensus estimates come down; however, March datapoints have also disappointed,” Citi analysts said.
“While buy-side Q1 delivery estimates (we believe in the low 400s range) sit wellbelow the sell-side consensus (460-470k, but coming down), the setup remains challenging with street estimates still looking too high, not only for 2024 but also 2025,” they added.
On the back of reduced estimates, Citi also trimmed its price target on Tesla stock from $224 to $196. Similarly, Redburn analysts reduced the target to $150 from $160 on the same grounds.
Moreover, Baird analysts also voiced a similarly pessimistic view on TSLA, reiterating the stock as its ‘Bearish Fresh Pick’ ahead of the Q1 delivery update.
They believe the current Wall Street estimates for the first and second quarters are overly optimistic and anticipate risks to these forecasts in the first half of the year.
According to Baird, sentiment around Tesla stock has notably shifted towards the bearish side over the quarter, a trend they expect will persist in the near term. While critics focus on the issue of demand, Tesla bulls continue to highlight the potential for growth from its Full Self-Driving (FSD) capabilities and advertising opportunities.
“We believe these may take longer to materialize and continue to like the stock long-term, but are extending our Bearish Fresh Pick through the Q1 print,” Baird’s team wrote.