Tesla (TSLA) -) shares moved higher Tuesday following a pair of price-target cuts from Wall Street analysts ahead of the clean- energy carmaker's third-quarter earnings report next week.
UBS analyst Joseph Spak lowered his Tesla price target by $24 to $266 a share less than a month after raising it. Jefferies analyst Philippe Houchois clipped $15 from his price target, taking it to $250 a share,
The moves followed weaker-than-expected September sales in China heading into the Austin group's Q3 earnings update.
Houchois also cited eroding profit margins and weak fundamentals that "raise questions whether Tesla's earlier profit edge was structural or a timing difference." He added that some of the company's other initiatives, including the leasing of full-self driving technology, aren't ready to offset softness in the broader business.
A test of Tesla's strategy: market share over profit
China's Passenger Car Association said Sunday that Tesla sold just over 74,000 cars in the world's biggest market last month. That's an 11% slide from the year-earlier month and the 84,159 tally recorded in August.
The slowing sales will test Tesla's 2023 strategy, outlined earlier this year by Chief Executive Elon Musk, of focusing on market-share growth at the expense of profit.
As part of that aim, Tesla has been aggressively cutting the price of its flagship Model 3 sedan and Model Y midsize SUV in key markets worldwide, including the U.S. and China. It's an effort to entice new buyers and fend off increasing competition in the EV space.
Tesla shares were marked 1.4% higher in early afternoon trading to change hands at $263.40 each.
Earlier this month, Tesla unveiled plans to cut the cost of its Model Y SUV, as well as its Model 3 sedan by as much as 4.2% for U.S. customers. It has slashed the cost of its flagship Model 3 by around 17% since the start of the year, with a steeper 26% reduction in cost for the Model Y.
Tesla Q3 report due Oct. 18; profit drop seen
Tesla will publish its third-quarter earnings after the close of trading on Oct. 18. Analysts are estimating that its overall bottom line fell nearly 30% from a year earlier to 74 cents a share, even as revenue rose about 12% to around $24.16 billion.
The difference is likely to be reflected in the group's closely tracked automotive margins, a key profit metric, which have been narrowing sharply over the past 12 months following Tesla's price-cut strategy.
The cuts have taken their toll on Tesla's profit margins, which were pegged at 18.7% for the three months ended in June, narrowed from the year-earlier tally of 22.4%.
Demand has also been questioned, particularly in China, Tesla's biggest market, following weaker-than-expected third-quarter deliveries of 435,059 new cars.
Analysts' forecasts for deliveries ranged from 420,000 to around 470,000 with Refinitiv pegging the September quarter target at 459,000.
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