Jeffries cuts price target on Tesla

Jeffries cuts price target on Tesla

Jefferies reiterated a Hold rating on Tesla (NASDAQ:TSLA) and cut their 12-month price target on the stock after the electric automaker posted a decline in quarterly production and deliveries.

The decline in production was expected, as the company had closed several facilities to accommodate updates for the automaker’s Model 3 refresh.

However, the increased margin erosion in Q3 and the uncertain growth prospects for 2024 continue to cast doubt on whether Tesla’s previous profitability advantage was due to structural factors or simply a timing discrepancy.

Analysts at Jefferies wrote in a note, “We continue to think that everything Tesla does differently from the rest of the industry can also be done by others if given time, making speed essential to maintain an edge. The latter seems to have been eroding, from product features.”

Jefferies predicts slightly lower Q3 average selling prices at $45.5k, excluding ZEV and leasing income, resulting in Q3 Auto/Group revenues of $19.6/23.9 billion. They anticipate an auto gross margin of 18.4%, including leasing, thanks to benefits from lower raw material costs and an approximate $250 million increase in income from regulatory credits, which will help offset higher fixed costs and depreciation and amortization expenses.

Looking ahead to 2024 estimates, Jefferies factors in 100k Cybertruck sales, increased production of 4680 batteries, and government subsidies. However, they still expect a 16% reduction in EBIT to $13.9B and a 23% decrease in FCF to $9.9B.

“Hyperscaling through model concentration remains a unique feature of Tesla’s auto business model but reaches its limits without the launch of more volume models. Cybertruck may fit the profile but production challenges and lack of specs keep us in the dark,” added the analysts at Jefferies.

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