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Shares of Tesla (TSLA) have underperformed the broader markets since the bear market of 2022. The electric maker has been wrestling with a range of factors, including inflation, higher interest rates, and rising competition. To offset these headwinds, the EV maker cut vehicle prices multiple times in the past 18 months, which has eroded its profit margins and cash flow.
Down almost 40% from all-time highs, Tesla staged a comeback in Q3 of 2024, as the stock soared over 30%. However, TSLA started October on a weak note after reporting softer-than-expected delivery numbers for the July-September quarter. Let’s see if Tesla is a good stock to own right now.
Tesla Delivered 462,890 Vehicles in Q3
Tesla stock tumbled 3.5% by the close last Wednesday after it posted Q3 vehicle deliveries of 462,890 units, lower than estimates of 463,310 units. In the year-ago period, its deliveries totaled 435,059 units, while the company reported 443,956 deliveries in the June quarter.
As stated above, Tesla is facing competition from Chinese manufacturers such as Byd (BYDDY), Nio (NIO), and Li Auto (LI). While Tesla continues to lead the EV market in the U.S., companies such as Ford (F), General Motors (GM), and Rivian (RIVN) are fast gaining traction. For instance, EV sales for legacy auto manufacturer Ford were 12% higher in the most recent quarter, while GM increased sales of battery-powered vehicles by 60% year over year.
Wall Street expects Tesla’s vehicle delivery growth to decelerate in 2024, despite the addition of the Cybertruck. Analysts tracking TSLA stock expect Tesla’s revenue to rise by just 2.2% year over year to $98.9 billion in 2024, which would mark its slowest growth rate as a publicly listed company.
All Eyes on the Robotaxi Event
The next major near-term driver for Tesla in the critical month of October will be the upcoming robotaxi event, scheduled for Oct. 10. Tesla CEO Elon Musk has long promised a full self-driving car to shareholders, but has failed to deliver on his lofty promises. This week, Musk finally appears set to unveil the design of Tesla's autonomous cabs, also called the robotaxi.
According to Musk, the robotaxi will unlock a multi-billion-dollar revenue stream for Tesla and disrupt the ride-hailing market. Moreover, investment firm Raymond James expects the robotaxi’s annual bookings to surpass $50 billion by 2030.
Notably, Alphabet-owned (GOOGL) (GOOG) Waymo already operates a fully autonomous ride-hailing service in several cities in the U.S. In August 2024, it surpassed 100,000 weekly rides. Amazon-backed (AMZN) Zoox began testing rides for employees last year, while China’s Baidu (BIDU) and Pony.ai are also operating these services.
Tesla’s Profit Margins are Under Pressure
Tesla continues to invest heavily in artificial intelligence (AI) and robotics as it looks to gain a foothold in several key markets, including battery storage. In the last 12 months, Tesla’s gross margins have narrowed to 17.7%, compared to 25.6% in 2022. In this period, its operating margins have fallen to 7.5% from 16.8%.
Further, Tesla reported a record free cash flow (FCF) of $7.56 billion in 2022, while its FCF has fallen to just $1.7 billion in the last four quarters.
Analysts expect Tesla’s adjusted earnings to narrow by 27% year over year to $2.27 per share in 2024, and relatively few recommend buying the stock at current levels. Out of the 37 analysts covering TSLA stock, 10 recommend “strong buy” and one recommends “moderate buy,” while 18 recommend “hold” and eight recommend “strong sell.”
The average 12-month target price for TSLA stock is $202.80, indicating a downside potential of almost 19% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
